iBio Stock Has Tripled in a Few Weeks. Here’s What’s Next

Advertisement

From the July 1st low to current prices, iBio (NASDAQ:IBIO) shares have rallied more than 230%. Year to date, iBio stock has jumped more than 2,300% as investors continue to pile into this name. 

A scientist in medical gear peers through a microscope.

Source: Shutterstock

The surge has many speculators asking, what now? 

Shares began to bubble higher in mid-July but then burst higher on July 20th. While iBio shares closed higher by more than 60% that day, the stock was up 84.9% at its high that day. 

Momentum in this name has been monstrous and shares still don’t look to be quitting. Near the end of March, I said that I didn’t like the fundamentals for iBio and said it’s more akin to a call option than an investment.

With the latest rally — or should we say surge, with shares up almost 500% since April 1st — that observation is playing out. iBio still has speculative-investment-like fundamentals, however, its performance has been like a call option.

“I say call option because buying a $1 stock is essentially a small capital outlay much like a call option, where the underlying asset could be worthless, or see considerable upside in the face of good news,” I noted at the time. “The main difference (aside from iBio stock not actually being a call option) is that it doesn’t have an expiration date.

Call Options and IBIO Stock

Investors familiar and unfamiliar with call options are both aware of the potential upside that’s possible with these investments. It’s not uncommon to see, doubles, triples, quadruples or more when utilizing these leveraged instruments. 

It’s why I referenced iBio as a similar-looking investment vehicle, and its massive return over the past few months underscores just that. In hindsight though, it would have paid to be a bit more bullish. 

Some readers may be flustered by the constant references to options. I understand that. But please also understand that there are no real fundamentals to go with here. This stock is essentially a binary situation with the novel coronavirus. Either it plays a meaningful role in the treatment or it doesn’t.

It doesn’t have any real revenue — less than half of $1 million in fiscal 2019 — and therefore operates its business at a loss. It’s also free cash flow negative, to no surprise. 

For a while, current liabilities outweighed current assets. That created some concern for liquidity, particularly as the business is not generating positive cash flow. However, last quarter iBio shored up this issue. 

Current assets went from $4 million to $10.3 million, which now top current liabilities of $6.1 million, which is up from $4.7 million in the prior quarter. The move also nudged total assets ahead of total liabilities, now at $42.2 million vs. $38.2 million, respectively. 

With an improved balance sheet and upside potential, the focus shifts to the charts.

Trading iBio Stock

Daily chart of iBio stock price.

Source: Chart courtesy of StockCharts.com

There have been a handful of coronavirus plays in the healthcare and biotech space. A few of them include Gilead Sciences (NASDAQ:GILD), Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE). Even Johnson & Johnson (NYSE:JNJ) has its hat in the ring

However, not many have performed as well as iBio lately. As it consolidates the latest portion of its massive move, bulls must see how well the stock is able to maintain the gains. 

Specifically, let’s see if investors can keep IBIO stock over $5. So far that level has been supported, while $6.50 has been an area of supply, or where sellers step in. A close over $6.50 puts the 2020 high in play at $7.45.

Above the current high puts the 123.6% extension in play at $8.77. On the downside, a break of the recent low at $4.81 puts a gap-fill in playback toward $4.

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.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.


Article printed from InvestorPlace Media, https://investorplace.com/2020/07/ibio-stock-tripled-now-what/.

©2024 InvestorPlace Media, LLC