When it comes to biotech companies, I am not surprised why many investors feel they are playing Russian roulette. Names that were obscure before the novel coronavirus are suddenly on a bull run for every biotech firm involved in coming up with a commercial vaccine. Hence, until we have a vaccine, iBio (NYSEMKT:IBIO) stock will continue to ascend higher with each positive news report.
Shares of the company increased by about 600% year to date, and I don’t expect the momentum to stop anytime soon.
At the same time, a lot of hype surrounding the stock is unwarranted. As I mentioned in my previous piece, the company does not have a successful track record of producing vaccines to treat illnesses. This fact makes me wary of committing a large amount of capital to the firm.
Since the time I wrote about the stock, the company has filed to issue $45 million of common stock. It’s no surprise, considering the high degree of cash burn the company is incurring daily. Investors are hoping for a miracle from iBio, but there isn’t any evidence to suggest that the company will follow through on their wishes.
Let’s look at some of the recent developments that are rocketing the stock to unprecedented levels.
IBM announced it would allow iBio access to its IBM Clinical Development solution for 18 months. The cloud-based EDC platform aims to decrease the time and cost of clinical trials. In a press release, the biotech firm said the platform’s availability would help in the effectiveness of its clinical trials. iBio has two Covid-19 vaccine candidates, IBIO-200 and IBIO-201, and expects to deliver preclinical data on them in the next quarter.
Also, the company joined the Russell 2000 and Russell 3000 indexes on Monday, June 29 – a move that sent its shares skyrocketing in premarket trading last Friday. This is all excellent news, but it has little to do with the company or its operations, and that is the issue I have with iBio stock.
Despite all the hoopla surrounding the company, it has yet to produce a commercially viable vaccine for an infectious disease. Its FastPharming technology will prove helpful in scaling up operations but its operating metrics remain weak.
In fiscal Q1, revenues dropped while operating expenses increased by approximately $900,000, keeping the bottom line negative. Notwithstanding these numbers, the company’s market cap stands at $190 million, astounding for a company with iBio’s track record.
The latest results are a testament to how highly the market values any company that can help in the fight against Covid-19.
How Should You Play iBio Stock?
A potential second wave of Covid-19 has already spooked investors leading to a substantial drop in share prices. Spikes in infections are a boon for companies involved in developing vaccines or therapies for the illness.
iBio stock is also a beneficiary of this bullish outlook, but we’ve been here before. When the ebola virus was wreaking havoc, shares of the biotech company surged in an almost identical fashion. Once it was clear that it could not deliver on a vaccine, the stock returned to earth.
If history is anything to go by, the same fate awaits iBio stock this time around as well.
However, that’s not to say that there isn’t money to be made through taking a position in the stock. But only the investors that have the discipline to know when to exit will stand to make substantial gains. Every little bit of positive or negative news will lead to dramatic swings.
If you are looking for a company with strong fundamentals and a history of providing excellent returns, iBio may not be the best stock for you.
Final Word on iBio Stock
Considering the Covid-19 situation, there’s a temptation among investors to make sure they pick the most likely candidate for a vaccine. That’s why valuations for small microcap stocks like iBio have skyrocketed.
Twenty-one drug manufacturers are actively working toward a vaccine. One way to make sure you don’t miss out is to take a position in each company. That way, even if you end up losing money on one stock, you can easily make up for it through profits made on the pharmaceutical company that manages to come up with a vaccine.
Still, I maintain that iBio’s history doesn’t lead me to believe it will be the company that comes up with the drug to end this crisis.
Faizan Farooque is a contributing author for InvestorPlace.com and numerous other financial sites. He has several years of experience in analyzing the stock market and was a former data journalist at S&P Global Market Intelligence. His passion is to help the average investor make more informed decisions regarding their portfolio. He does not directly own the securities mentioned above.