iBio (NYSEMKT:IBIO) stock is one which has drawn a good deal of interest of late. As a small-cap stock, it is a speculative play with the potential to reward optimistic investors handsomely.
The opposite side of that coin is its potential to result in significant losses. Here are three pros and three cons to consider before buying IBIO stock.
3 Pros of IBIO Stock
Rapid Growth: Stocks in this sphere can race upward with the potential for producing a vaccine. IBIO has risen from a share price of 30 cents on Jan. 1 to $1.56 as of this writing. Tremendous growth, yes, but also an indication of how small this company actually is.
Nevertheless, the stock has risen an impressive 420% this year. But the company won’t be the one to create a viable vaccine. As per Investopedia, several other companies have the best chances of commercializing a vaccine, including CanSino Biologics, AstraZeneca (NYSE:AZN), Pfizer (NYSE:PFE), Moderna (NASDAQ:MRNA), Johnson & Johnson (NYSE:JNJ), Sanofi (NASDAQ:SNY) and GlaxoSmithKline (NYSE:GSK).
It Can Be a Helper: iBio’s business is more geared toward contract manufacturing and intellectual property than discovering a Covid-19 vaccine. Its focus is providing a platform for scaling up production of drugs.
Investors should keep this mind when considering a purchase. The company grows plants that it uses to produce target proteins which can be used in vaccines. They call the technology FastPharming. So, if one of the companies above or any other creates a viable vaccine, iBio can help in the mass production.
The company states that has the capacity to produce 500 million doses of a vaccine through the same platform.
Several Revenue Streams: Aside from its ability to manufacture a vaccine, iBio also has other methods of making revenue. The company currently has a swine fever vaccine in clinical development, a drug for treating fibrotic diseases which has an orphan drug designation, and Covid-19 vaccines.
This pipeline of drugs does represent potential revenues, but just how much is very hard to assign a dollar value.
3 Cons of IBIO Stock
It’s a small company: iBio is a company that has been in trouble for some time. The company has racked up $146.9 million in losses since spinning off from Integrated BioPharma in Aug. 2008.
The company reported $527,000 in revenue in the first quarter of 2019, and $96,000 in the same quarter this year. Investors should be able to surmise that the company is not a large one. However, it is getting lumped in with much larger companies like Moderna, Johnson & Johnson, Sanofi and others in the conversation about a coronavirus vaccine.
Nevertheless, the company has continued to rack up losses in its search for biotechnological innovations that can earn it revenues.
Declining Margins: Operating margins have declined 10.3% on average over the past five years at iBio. The company is getting less efficient and returning less and less from its sales. Ultimately investors want to see iBio make more sales and do so with increasing efficiency, aka at higher margin. But that hasn’t happened.
Taken in isolation the company might be able to explain away this problem. But given the company’s track record and other problems, things appear dire.
Sliding Revenue: Revenue per share has been declining for the past five years. Simply put, iBio isn’t making much money for those investors who have purchased its shares.
Although iBio might spin this by implying that as a biotech company explosive growth is more likely, investors should be wary. The fact is that the company has an obligation to its stockholders to find methods of making revenue and it hasn’t.
These problems are referred to as warning signs by analysts. They aren’t simply vague macroeconomic notions loosely implying that a company or industry may falter in the long run. For example, we could say that big oil is in peril based on the macroeconomic headwinds related to fossil fuel consumption. But that wouldn’t really be considered a warning sign.
However, if a given stock shows decreasing revenue per share, that is considered a warning sign. The same is true of both decreasing operating margin and insider selling. Potential investors should take heed.
The Verdict on iBio
My impression is that iBio is a case of hope, and not a hopeful case. This looks like a company in distress that is taking a swing at the fences with its vaccine hopes.
If it manages to provide a platform which is utilized in a commercialized vaccine it will come out for the better. But that’s a big if. The same potential is true of their other pipeline projects but if past is prologue, tread lightly. But I believe the warning signs makes iBio less than a hopeful case.
Alex Sirois did not own any of the aforementioned stocks at the time of this writing.