Inovio Pharmaceuticals (NASDAQ: INO) is probably the most controversial COVID-19 play of 2020. Some investors are incredibly bullish on the vaccine frontrunner claiming the stock will be near Novavax very soon. However, many investors are pessimistic about INO, claiming it is a COVID-19 star fizzling out. Initially, the bulls seemed to be right as INO gapped up from $15 to $32 in days. However, the recent downward slope is adding weight to the bearish argument. INO is becoming even more polarised as Inovio’s earnings are just around the corner. Thus, today’s article will look to explain why INO is down, what’s in store for earnings and whether YIG sees value.

Table of contents 
1. A simple explanation on why INO plummeted
2. What to expect in upcoming earnings 
3. Does YIG see value in an Inovio Investment?

Why INO, a vaccine frontrunner, down 40%?

INO skyrocketed on phase I trial data, government funding, and, most importantly, retail investors flocking towards the relatively cheap vaccine stock. However, Stifel analyst Stephen Willey change his position on INO from a buy to a hold at the back end of June, which instantly sparked a sell-off. Leading many investors to speculate that INO is driven by retail investors but led, at large, by institution ratings.

Moreover, vaccine investors have a huge appetite for price-sensitive events that keep the stock on its bullish trajectory. However, it seems INO’s massive events are behind them at the moment. Also, competition played a key role in Inovio falling. Novavax’s recent vaccine success saw many INO investors jump ship, in an attempt to benefit off the bullish optimism.

Furthermore, the recent decline stems from bearish news articles criticising INO’s technology, vaccine progress, and history of attracting money in the name of solving a virus. In particular, the New York Times post today sums up the bearish narrative from bearish journalists. The main arguments are as follows. INO’s technology is questionable, insiders exaggerated claims to inflate the stock price, no DNA-based, which INO’s is, has ever made it to market, and the legal battles with VGX and INO shareholders should wrench the biotech down.

It is hard for investors not to have a bearish outlook on INO after reading the NYT’s post. Pre-market shows INO down 2% (at the time of writing),  indicating the article’s negative sentiment is beginning to sweep across Wall Street. However, YIG reminds investors that taking the words of one article to be final is not the smartest decision. Thus doing due diligence to conduct further research on the INO debate would be intelligent.

What to expect for Inovio’s earnings

INO is releasing earnings this afternoon with an expected EPS averaged at -$0.18, a -8.33% surprise factor according to NASDAQ. The past four quarters for INO produced an average EPS of -$0.30, suggesting this quarter will be a considerable improvement for INO. It is worth mentioning YTD INO is yet to provide a positive surprise percentage, suggesting analysts have over-stepped their predictions with optimism.

Takeaways from Q1 Earnings

  • INO posted $1.3 million in revenue for Q1, a 55% decrease in revenue compared to its previous quarter
  • -$0.26 EPS, a slight improvement from its previous quarter
  • $5.4 million decrease in R&D expenses compared to its previous quarter
  • The Coalition for Epidemic Preparedness Innovations (CEPI) grant for $17.2 million alongside an addition $5 million from the Bill & Melinda Gates Foundation

 

Inovio’s Q2 earnings call should give greater insight into how INO is currently tracking with their vaccine alongside other medical projects. In all reality, these earnings won’t drastically effect investor sentiment. The COVID-19 vaccine progression is the key driver of INOs share price, as some INO investors will not even read the earnings report this afternoon. This is the reality of the current market we operate in.

 

Does YIG see value ahead of Inovio’s earnings?

Before I begin, I am obliged to remind our viewers that this is not financial advice but rather investment commentary from extensive research 

Short answer: Short-term plays on both sides of the fence holds the most value (opinion not advice) 

Neither the INO bulls nor bears are going away anytime soon. However, YIG would like to point out that volatility is a traders dream. Without volatility, there would be no risk-reward.

Investors can ride the bullish momentum by buying calls, selling puts, or buying and selling the stock. An investment that rides the anticipation of the catalyst will increase your odds of success. On the other side, investors can join the bears and purchase puts options, or sell call options. Riding the sell-off after catalysts could increase your probability of making a gain. In both bullish or bearish plays the time-horizon should be short otherwise, volatility will crush you profit potential.

Objectively no vaccine stock should grow at a linear rate. Instead, upwards growth with occasional pull-backs before continuing the surge should be the graph the stock creates. Thus, giving weight to riding the anticipation before INO’s big events and shorting when the noise gets quite (volatility reduces). The strategy takes out emotion, which is what every trader should be looking to do. (opinion not advice)

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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.

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Written by Patrick McLoughlin, and Tyger Fitzpatrick, Senior Manager, and Founder of YIG.

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