Inovio Pharmaceuticals (NASDAQ:INO) is heating up, as investors continue to flock to certain stocks for the novel coronavirus. Shares of INO stock have rallied 140% from the April 15 low to the high on April 27.
Can that momentum continue?
I am all for combing over the fundamentals and looking for high-quality companies. I love companies with a powerful balance sheet — like Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) or Facebook (NASDAQ:FB) — and ones that generate powerful cash flow. But I’m also keen on the technicals.
When a company has just one or the other, investors need to respect which one is in control. In other words, take a closer look at companies with improving and solid fundamentals, yet a poor stock chart. On the flip side, companies with poor fundamentals and strong price action should not be a no-brainer short. As the saying goes, the market can remain irrational longer than you can stay solvent.
In the case of INO stock, that last line is particularly resonating for some investors. For instance, investors who thought Inovio was a short at $8 less than two weeks ago are hurting after taking a 100%-plus loss on the position. That’s what happens when you ignore the technicals.
Trading INO Stock
Look at how strong this stock has been over the past few weeks. We can also see that strength shows itself in the volume profile too. Shares rallied for seven straight sessions before gapping higher to a monthly high on April 27 before pulling back.
The move was big and fast, but not surprising. In early April, I wrote that (bold emphasis added):
“The stock is putting in a series of higher lows and lower highs. It’s setting the stock up for some kind of break — either higher or lower out of the range. Following such a large move higher, the charts actually favor the bulls…Should INO stock break out over resistance, look to see if it can climb to the $10 mark. Over $11 and $14-plus is possible.”
Well, shares did climb to the $10 mark, clear $11, then take out $14. The rally triggered another surge higher, with shares barely eclipsing $16, the March 6th high. INO stock doesn’t have quite as bearish of a topping pattern as it did last month, but the current move shows it may be running out of steam. At least, temporarily anyway.
From here, we need to see how well INO stock can hold up. If it can stay over $12 and find this level as support, it puts a retest of $16 in play. Any move over $16 could trigger a rally up toward the highs near $19.
On the downside, a move below $12 puts the 20-day moving average in play, along with the breakout level near $9.30. Below that and bulls will really suffer a setback, putting uptrend support and the 50-day moving average in play. While INO stock would stick be in a technical uptrend, sentiment will take a hit if it loses its breakout point.
Valuing Inovio
This is where it gets tough with Inovio stock. Last year, INO stock generated revenue just $4.1 million, while losing almost $120 million. Total assets barely edge out total liabilities ($143.9 million vs. $138.5 million) and free cash flow is negative.
Inovio needs a hit with one of its treatments and that feels too binary for me. Particularly as the stock is up big on hopes of a coronavirus treatment.
With Wednesday’s action, Gilead Sciences (NASDAQ:GILD) seems to be firmly in the driver’s seat for a potential coronavirus vaccine. It has trials set up around the world, it’s got a deep R&D budget and plenty of motivation. Even the White House’s Dr. Fauci recently praised Gilead’s remdesivir treatment.
While that’s great news for the world, it may not be such great news for Inovio and the handful of other biotech hopefuls. At least for those that are looking at their own treatment solutions. In any regard, INO stock remains a trading vehicle only, not a long-term investment, due to its weakened financial status.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell did not hold a position in any of the aforementioned securities.