iBio (NASDAQ:IBIO) ripped from 30 cents to $3 over a few days in February on hopes that it would play a role in finding a treatment for the novel coronavirus. Now though, IBIO stock is back down to $1 as that hope and optimism fades.
This is the problem with small-cap biotech stocks: they often lead to disappointment. With its $102 million market cap, iBio stock fits the bill.
Here’s the problem: A disease or a pandemic breaks out and everyone starts talking about a treatment or a cure. Their heads turn to the biotech sector and as these small caps start surging higher, investors buy in on the hopes it will be the next big thing.
It rarely ever is, and that’s what’s playing out with iBio.
What to Make of iBio Stock
We see this all too often. Biotech stocks jump — usually by several hundred percent — and then come crashing back down to earth. Usually only a few (or even no) companies can solve the puzzle in the first place. Then convert that discovery into sales before scaling production.
In this case, finding a solution could lead to a licensing deal with a producer in order to scale production. However, it doesn’t look like that will be a problem iBio has to figure out.
Gilead Sciences (NASDAQ:GILD) is seen as the leader in this treatment situation. Its remdesivir treatment has shown promising signs with Covid-19 patients.
Its gaining approval around the world and being fast-tracked by the FDA. I’ve liked Gilead for some time. However, it’s not because of the coronavirus. A treatment for this would be like a cherry on top — some extra gravy on an otherwise delicious meal.
That’s because Gilead already runs a great business. It has strong cash flow, a powerful balance sheet and is very profitable. Along with a low valuation, there are a plethora of reasons to consider a long position in Gilead Sciences.
Is it the best company on earth? No. But it’s a much better pick than a flash-in-the-pan small-cap biotech stock.
When it comes to iBio, you get about what you would expect from a $1 stock. The company has virtually no revenue — just $1.7 million over the trailing 12 months — and is not profitable or cash flow positive. The company has just $4.4 million in cash but has had free cash flow burn between $14.5 million and $15 million in each of the last three years.
Trading iBio
In other words for iBio, the fundamental side is virtually nonexistent. Yes, iBio stock can double or triple overnight because of the volatility. If it “strikes gold” so to say, its stock can run incredibly far.
But these types of trades are “bets” in my mind, and I don’t invest to place bets. If I want to bet, I’ll go to Vegas — or in our new quarantine world, I’ll head to the options pit for some weekly lotto picks.
Shares of iBio stock spiked in late April, but sellers stepped in immediately. The gap-up to $1.50 was quickly sold lower and shares are now back to $1. Guys, there’s a reason this stock was worth five cents in November. Speculative buyers had their bets paid handsomely and that could be the case again. After all, there’s nothing stopping IBIO from going back up to $1.50, $2 or $3.40.
But I would rather bet on the horse that has the best chance of survival. In that case, it’s not iBio stock. It’s simply too risky for me. For those that do play long, they’ll want to see the April lows hold. Below that and the 200-day moving average — or lower — could be in play.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.
