Bouncing back after cratering earlier this month, should you dive into iBio (NYSEAMERICAN:IBIO)? Not so fast! Investors now may be buyyng on the headlines thanks to a potentially positive development. But make no mistake—this isn’t time to “buy the dip” on iBio stock.
Why? Sure, the company remains a contender in the race for a novel coronavirus vaccine. But, this “also-ran” remains far behind the leaders of the pack. And, given its no slam-dunk for vaccine front-runners like Moderna (NASDAQ:MRNA), there’s little reason to speculate on the stragglers.
Granted, the risk shares go parabolic again is a key reason to not short iBio. Yet, it’s not a good reason to buy. Wagering on FOMO and momentum (not fundamental) sending shares high is gambling, not investing. And this gamble is one of the biggest long-shots out there.
So, what’s the call? Steer clear of shares, as this vaccine “story stock” offers little opportunity.
Recent News Won’t Save IBIO Stock
As InvestorPlace’s William White wrote Aug 24, news of the U.S. Food and Drug Administration (FDA) approving use of convalescent plasma therapy to treat the coronavirus sent iBio shares surging again.
Shares soared 30% on Aug 24 alone, and were up double-digits the following day. But, does the FDA news really mean anything for this company’s prospects? Yes, the company has had indirect involvement with plasma therapies. But, that doesn’t mean the company’s FastPharming platform (contract development/manufacturing) business will reap any benefit.
Yet, a breadcrumb of good news is all this “story stock” needs for speculators to rush back in. And, with the stock’s popularity among traders on the Robinhood platform, there’s potential for another epic rally in the near-term.
I know it sounds temping, but dabbling in a potential second round of speculation is not a good reason to go long at today’s prices. Namely, because you don’t know the music’s going to stop for iBio. And when it does, expect shares to crater back to where they were pre-outbreak.
Why Shares Could Fall Back to Pre-Pandemic Prices
Before the coronavirus, iBio stock was trading for pennies. And, although the virus continues to linger, shares could head back in their pre-pandemic prices soon than you think.
How so? Firstly, with leading vaccine contenders already in Phase 3 clinical trials, it’s only a matter of time before someone has a vaccine that’s ready for general use.
Sure, it may not be until mid-2021 that a leading contender from Moderna or AstraZeneca (NYSE:AZN) will be available for sale. But, if one of these front-runners is on the path to approval by years’ end, expect investors to continue bailing out of second and third-tier contenders like this stock.
I know what you’re thinking: “okay, this catalyst may be a bust, but is there something else this company can fall back on?” Not really. Sure, as InvestorPlace’s Mark Hake talked about in his Aug 19 iBio article, there could be potential with the company’s contract manufacturing business.
But, almost of all of iBio’s market cap today is based on its COVID-19 catalyst. If this catalyst falls by the wayside, the FastPharm business, outside of COVID-19 activities, isn’t enough to sustain today’s valuation.
There’s a high chance shares fall back to under $1 per share. And, all bets are off whether we’ll see a second rally in iBio stock. In short, it’s best to stay away. On the long side and the short side.
Too Risky to Go Long (or Short)
We’ve established why IBIO stock isn’t a great long opportunity. But, that doesn’t mean it’s a great stock to short, either.
2020 has been a tough year for short-sellers. There hasn’t been a worse time to short stocks on valuation, as seen by the surging multiples of “story stocks” large and small. And, with speculators bidding up shares on headlines alone, even the most insignificant of news can help bolster a weak company’s share price.
With this in mind, don’t try to go against the grain if iBio shares briefly go parabolic again. Yes, shares are likely headed lower. But, as the old adage goes, markets can stay irrational longer than you can remain solvent.
So, what’s the play here? Too risky to go long (or short), stay far away vaccine play IBIO stock. Other vaccine candidates may offer opportunity. But, this “also-ran” isn’t much of a contender.
Thomas Niel, contributor to InvestorPlace, has written single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.