What does it take to move a stock price from $ 0.29 to $ 15.81 – an increase of 5,350% – in just 18 days?
Coronavirus, of course. Or more precisely, a vaccine to combat it.
An unprofitable biotechnology that focused on commercializing therapies to cure blindness before the current pandemic, Ocugen (OCGN) the stock was given new life on 22 December when it announced plans to develop the Indian Bharat Biotech’s Covaxin ‘vaccine against SARS-CoV-2 coronavirus.
Ever since this announcement, the stock has been on a tear, leaving Chardan analysts Keay Nakae‘s previous $ 0.70-pr. stock market in the dust.
Yesterday, Nakae took another look at the Ocugen at the current stock price, declaring it too expensive and downgrading the shares to Neutral (i.e. Hold). However, the analyst raised its price target to $ 13 (to take into account the stock’s astonishing price rise), implying a 17% upward trend from the current level. (To see Nakae’s track record, click here)
Why is Nakae thinking about Ocugen now? Valuation is obviously a concern and certainly the primary one. After all, hype aside, the Ocugen stock is a company that is almost no revenue. In the past year, its sales have not exceeded $ 50,000 (it almost goes without saying that Ocugen has no profit). At the current market value, the Ocugen stock is therefore selling for a mind-numbing 40,000 times subsequent sale, which is a bit of a lot.
What should Ocugen do now to justify this valuation – one that is not just “soaring” above the fair value, but more orbiting somewhere beyond Saturn?
First of all, Nakae notes that the company needs to win the Emergency Use Authorization for Covaxin from the FDA, which will not be an easy trick. Although Covaxin has an ongoing Phase III clinical trial, it is happening in India, and Nakae believes that even after the initial results are in (probably in March), the company may be able to conduct a further study in the US to win FDA approval .
Next, Ocugen will have to establish production operations to produce the vaccine in the United States. This, of course, will cost money, and it’s probably one of the reasons Nakae predicts that the company “will probably have to raise debt or equity funds in the future.” (After all, Ocugen does not currently have “any revenue-generating products” and the $ 19 million it has in the bank probably does not cover all the bills needed to set up production operations). Finally, once production is set up and the vaccine is sold, the company will have to compete with several other vaccines already on the market – and then split profits that result with its partner Bharat.
And of course, all of this only happens if the vaccine proves effective and safe enough to convince the FDA to issue the EUA.
So how long does all this take? How long before Ocugen becomes something resembling a company as opposed to just a “coronavirus game?” Nakae does not say, but he also predicted that Ocugen would be collecting revenue at all this year, so it won’t be soon.
So that’s Chardan’s view, what does Street of the Street have in mind? The current outlook presents a mystery. On the one hand, based on 3 Buys and 1 Hold, the stock has a strong Buy consensus rating. However, after rising so high this year, the average price target of $ 7.38 means ~ 34% downside in the coming months. It will be interesting to see if analysts downgrade their ratings or upgrade price targets in the coming months. (See OCGN stock analysis at TipRanks)
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Disclaimer: The statements in this article are solely those of the featured analyst. The content is intended for informational purposes only. It is very important to do your own analysis before making an investment.
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