Ocugen (NASDAQ:OCGN) has received lots of attention lately. Why? Because recently the OCGN stock price shot from $2 per share to nearly $16 on news the company was entering the vaccine space for the new coronavirus.
Everyone wants to buy a stock and experience a meteoric price rise like that. With recent share prices now around $6.70, is OCGN still a good choice?
Maybe.
With a history of operating losses and an uncertain future in the pandemic vaccine space, putting new money into this stock is a gamble and only for very hearty investors.
A Broad Look at OCGN Stock
Ocugen is a biopharmaceutical company focused on developing gene therapies to cure blindness diseases. Now it’s also developing a Covid-19 vaccine. The company’s 10-k describes a cutting-edge technology pipeline, including a cornavirus vaccine, modifier gene therapy platform and novel biologic therapies for retinal diseases.
This previously little-known company has had a volatile stock price over the past 5 years. Share prices hovered under $1 for years before the burst to $16 on vaccine news.
To me, this recent story behind OCGN stock poses a classic question. Would this investment help me build true, long-term wealth? Or is this merely a short-term price jump and is the opportunity already gone?
To decide if Ocugen is worth our money, let’s compare the stock price to what shares are worth.
What Are OCGN Shares Worth?
The OCGN stock closed last Friday at $7.13. Deciding what those shares are actually worth is much harder.
One way to value shares is to review a company’s own earnings history and review the normal price-to-earnings ratio. Ocugen has a 5-year history of operating losses ranging from $3.67 per share to 32 cents per share. The earnings metric is not very helpful.
Other valuation methods include additional past fundamental metrics such as sales, cash flow or research and development as a percent of sales. With unsteady past performance on each of those metrics, it is hard to learn anything from the company’s past to inform the future.
Gambling vs. Investing Right Now
First a reminder: my experience is that we build long-term wealth investing in companies where we understand the company, we recognize the actual value of the shares and the current price is attractive compared to value.
Pharmaceuticals are difficult for most people to really understand and it is very hard to know what shares are worth.
The truth is that putting money into this company now is a bet that the price will go up mostly because the price went up recently and it seems reasonable that a coronavirus vaccine will help a company. Agree?
That is why I say this is more gambling than investing. That is not all bad — just a matter of understanding what we are doing before we devote hard-earned money.
How to Play Ocugen Today
If you have some room in your portfolio for some gambling, 0ptions-savvy players can make some money on Ocugen by selling May 2021 $7.50 puts. Currently priced at $2.15 per share per contract, put sellers can bring in $215 per contract for the commitment to buy 100 shares at $7.50 at contract expiration in May.
If the share price closes above $7.50 on May 21, 2011, the seller simply pockets the $215 premium for an annualized return of 172% on the commitment.
If the share price closes below $7.50 on expiration, the put seller is forced to buy 100 shares per contract for $750. But remember the seller already received $215, so the net cost per share is $5.35.
Your Take Away
OCGN stock has been volatile and has run from $2 per share to nearly $16 in the past week. With the stock today around $7, the question is whether to add new money now or not. An uneven track record makes it difficult to value the shares and the future is unknown in the Covid vaccine space.
However, options-minded players willing to gamble can still make some money on this stock by selling September 2021 at-the-money puts.
As of this writing, Doug Morse did not have (either directly or indirectly) any positions in the securities mentioned in this article.
