Almost every stock has been hammered as the novel coronavirus pandemic plays out across the world. However, vaccine and drug plays specific to the virus have gone through the roof. That includes Allied Healthcare Products (NASDAQ:AHPI), with AHPI stock up more than 1,300% so far in 2020.
That my friends, is a bit ridiculous — and it’s not a stock to chase.
AHPI stock isn’t the only one doing well in this mess either. Inovio Pharmaceuticals (NASDAQ:INO) is still up more than 130% so far in 2020, while Moderna (NASDAQ:MRNA) has climbed about 50% this year in hopes of a treatment. A more well-known name in Gilead Sciences (NASDAQ:GILD) is still up 15% this year despite a recent fall from its highs.
Look Elsewhere Besides AHPI Stock
While it’s tempting to seek out opportunity amidst a panic, investors would be better served by looking elsewhere. Unless a company has the cure or vaccine, its stock is likely being overinflated.
These names double, triple or climb 10-fold like APHI stock in hopes of becoming the next big biotech company thanks to a cure. For the most part, though, the stocks will come crashing down just as fast as they sprung up.
For Applied Healthcare specifically, this stock also caught a big boost during the ebola scare more than five years ago. However, that short-lived rally failed and the stock went on to make new lows.
Admittedly, the “coronavirus rally” has had more staying power than the ebola rally. Additionally, the charts look better, too. But just because APHI stock has been a robust trading vehicle for a few months that doesn’t make it a buy.
A Closer Look at Applied Healthcare
There are a lot of excellent names in the healthcare sector that are worth a closer look. Gilead has billions in sales and profit. Bristol Myers Squibb (NYSE:BMY) has a great business and pays a hefty dividend yield of 3.3%. There are many others worth considering, too.
For Applied Healthcare Products, though, the fundamentals just aren’t there.
Over the last four years, the company has had flat or negative revenue growth. It’s best growth year during that stretch came in 2018, where revenue grew 0.74% from the prior year. It hasn’t turned a net profit in that stretch either, with negative EBITDA too.
The company was free-cash flow positive last year, with $59 million. But it generated negative free cash flow in the three years before that, including free cash flow deficits of $860 million and $708 million in 2018 and 2017, respectively.
All I’m trying to say is, there’s a reason this stock was trading below $2 before the coronavirus pandemic came around. Maybe it can have some sort of role in the solution. If so, that’s great. But up more than 1,000% and bulls betting on that outcome now are simply speculating on a binary outcome.
Instead, consider looking for high-quality companies benefiting from long-term secular trends trading at a discount.
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.