Over the last several weeks, I have consistently warned investors not to overreact to the volatility caused by the coronavirus from China. This concept doesn’t just apply to embattled companies. In recent days, Allied Health Products (NASDAQ:AHPI) jumped out of obscurity, with AHPI stock surging to multi-decade highs.
To be fair, I understand why shares jumped the way they did. Broadly speaking, the healthcare sector has experienced a robust move higher as fears of the outbreak spread worldwide. Typically, pharmaceutical firms that may offer a possible vaccine or treatment to the coronavirus have experienced wild swings.
For AHPI stock, the underlying business focuses on respiratory therapy products. Additionally, Allied Health produces emergency ventilation equipment and medical gas systems. As their website states, should a mass-scale pandemic occur, Allied’s specialized equipment offers immediate and flexible lifesaving platforms.
Of course, the company fills a necessary niche. The coronavirus isn’t the first outbreak, nor will it be the last. Additionally, it has proved the need for specialized medical equipment in case of an epidemic. But the question isn’t about need but rather viability. Can AHPI stock justify its momentum after we get a hold of this virus? Here, I’m very skeptical.
Prior to the coronavirus, shares were sliding into obscurity. In 2019, Allied Health shed over 28% of equity value. By the way, that includes a near-26% gain between mid-November to the end of December. Without the threat of an incredibly disruptive outbreak, AHPI stock generates very little confidence on its own.
When the coronavirus calls it a day, so will Allied Health.
AHPI Stock Playing a Tired Tune
If you look at the five-year chart of AHPI, you’ll notice random upswings followed by long, gradual periods of decline. Immediately, this communicates the message that Allied Health struggles with relevancy. As such, it needs media-driven panic like the coronavirus to generate any meaningful interest.
Outside of such rare events, AHPI stock is nothing more than a rudderless penny stock with extremely low volume. You don’t need a financial guru to tell you that this isn’t the pathway to consistent success.
More to the point, Allied Health has only moved the needle during heavily broadcast epidemics. For example, when the SARS outbreak in 2003, AHPI stock marched to higher ground. Admittedly, the company was able to keep the momentum going, in part due to the positive atmosphere in the equities market prior to the 2008 financial crisis.
But when that crisis arrived, AHPI stock suffered a sharp hit. Shortly thereafter, the H1N1 influenza virus temporarily shifted people’s attention from the economic devastation. From the spring season of 2009 to near year’s end, H1N1 became a pandemic, according to the Centers for Disease Control and Prevention.
While this virus obviously struck fear among Americans, it represented fertile ground for Allied Health. After bottoming out from the devastation of the 2008 collapse, AHPI stock traded in lockstep with rising H1N1 cases.
But when H1N1 hit its peak in October, it was also lights out for Allied Health. From there, shares spiraled into an ugly bearish trend. Again, the underlying company failed to attract investor attention until the Ebola crisis emerged.
Like clockwork, AHPI briefly jumped into the stratosphere – relatively speaking – trapping bulls who didn’t learn their lesson. This time, shares failed to build even a pretense of momentum sustainability.
Allied Health Is Predictably a Poor Investment
If Allied’s history of disappointment isn’t enough to deter you from AHPI shares, consider the first trading session of March. In just one day, the stock dropped 35%. And that was during a time when the major indices had their best day, largely driven by speculation that central banks will prop up the global economy if necessary.
In other words, it appears that AHPI is back at its old game: tricking investors into believing that it has life outside of a pandemic. It may have worked to some degree with the SARS outbreak. But subsequent crises have produced fewer people willing to take the bait. With the coronavirus, this could be the quickest head-fake yet.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.