There is a reason why investors like to trade micro-cap stocks. They are very exciting delivering big moves in either direction. iBio (NYSE:IBIO) has a small enough market cap that it trades like one, yet also large enough to attract serious attention on Wall Street. The extent of the rallies and drops in IBIO stock this year were mind boggling.
I wrote about it in mid-July and the current price is still about the same. But what you couldn’t guess from the scoreboard is that it rallied almost 300% before giving it all back. The bottom line is that iBio stock offers investors an exciting speculative bet. It already showed its potential this year so it could have repeat performance soon. Step number one is to hold support.
The stock rose as high as $7.50 but unfortunately it let five of it go again and almost just as fast. The shape of the stock chart is not unique to it, because that’s how biotech stocks trade. In addition, this year the whole sector is plagued by investor expectations over the Covid-19 vaccines and therapeutics. As a result it’s been a roller coaster ride for everyone involved from Pfizer (NYSE:PFE) to Novavax (NYSE:NVAX) and Moderna (NASDAQ:MRNA). Such is the case that they always have a binary thesis.
The nature of their business makes them prone to headlines. Scientists cannot predict with accuracy the outcome efficacy or schedule. Regulatory pressures also play a big role, especially going into an election year. Although this year the negative rhetoric around drug prices has been low, the limelight has been hijacked by Covid-19.
iBio Stock Fundamentals Matter Little Here Until the Breakthroughs
The fundamentals have not changed much in the past two months. iBio is still very expensive from the traditional sense. The price of the stock reflects the assumption of future successes, not current worth.
On that front, its 19x price-to-sales is cheap within its peers. But it is twice as much as traditional companies such as Apple (NASDAQ:AAPL) or Facebook (NASDAQ:FB) for absolute comparisons. Within its sector it is practically dirt cheap. Novavax and Moderna to name two have three-digit price-to-sale ratios. iBio stock investors are a bit more realistic with their future expectations of it.
Nevertheless this is a low dollar stock and investors can lose fortunes trading them. It’s easy to forget that even if it’s a $2 stock, they can still lose 100% of their money. Therefore it is important to employ technical analysis to gain an edge. Otherwise the other side of the trade likely has that added advantage to win.
The good news is that after suffering an 80% drop from the high the stock held a bottom at $1.60 per share. This level has been in contention since March, so the bulls are not likely to give it up easily. But if they do lose it the technical downside target can be big.
This is nothing against the company prospects. Besides and as we said earlier, they are one headline away from a big move up or down. The opportunity above is if the bulls can reclaim $2.30 then more importantly, the zone around $2.70 per share. There should be a lot of resistance into those two levels but as long as they are setting higher-lows, all they need is time to chip away at the it. Only then can they spike and try to launch another 60% rally. The ledge that they lost on Aug. 10 will be tough to overcome. This would be a good level for booking profits or trimming them if and when they ever get back there.
Let there be no qualms about it, trading iBio stock is just that. Trading and not an investment. It is definitely a speculative bet on a positive future outcome. The current price of the stock does not reflect the reality now, so there is a lot of opium involved in it. Therefore, this is not a stock to average down into on dips. When the fundamental thesis is in question, adding shares to manage a loss could simply mean making the potential loss bigger. The metrics are murky at best, therefore conviction in the bullish thesis should be weak by design.
It is important to remember that just a few months ago this was a penny stock. It’s entirely possible for it to go back there.
On the date of publication, Nicolas Chahine did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Nicolas Chahine is the managing director of SellSpreads.com.