Biotechnology is a very speculative and volatile sector in the stock market, and OCGN stock is no different. The OCGN stock has a beta of 4.56, meaning it is 356% more volatile than the S&P 500. Furthermore, like the biotech industry as a whole, OCGN stock has gone through wild upswings of 200%, just to fall back down by 50%.
There is definitely room to make money in the biotech sector however, over the long-run, most single stock biotechnology investments tend to lose a lot of value. Take OCGN stock for example, over the past 5 days the OCGN stock is up 15%, however in their 1 year and 5 year timeframes, the OCGN stock is down 52% and 95% respectively. This is not limited to OCGN stock though, as other like $BIIB — Biogen, , $BNGO — BioNano and $CRSP — Crisper (over 1 year)
OCGN is one of the most followed BioTech stocks on Stocktwits, as the OCGN Stocktwits forum has 155,600 followers, and over 14,000 daily messages. StockTwits is not the best source for investment information and advice (obviously), but it helps us to gain a proxy for retail investment sentiment and ideas. The OCGN StockTwits forum garners over 2.4M impressions daily and has a 96% bullish sentiment. By looking at some simple figures, we can see that the OCGN Stocktwits community (and retail investment community) loves OCGN… but is it any good?
Massive Historical Shareholder Dilution for OCGN Stock Holders:
There have been various recent offerings of stock to help OCGN raise money, but what are they using this money for?
On April 28th2021, OCGN offered $100M in stock to cover business expenses (Agent fees, offering expenses, capital expenditures, working capital, and administrative expenses). As an investor, I am generally alright with offerings as long as they are being invested into expanding the business and generating more sales/earnings growth than they are causing in dilution decreases. However, this offering is being used to pay off expenses which generates 0 return and is a bad sign.
Since the beginning of 2020, OCGN stock has went from 52.63M shares outstanding to a whopping 199.19M shares outstanding. This increase represents a 278% increase in shares outstanding, which is the most I think I have ever seen.
OCGN Stock Financial Position:
Typically, high growth stocks will have high dilution figures, but will have large revenue growth (even if their net income is decreasing). However, since 2020 (the start of their large dilution) OCGN’s revenues have gone from a measly $42k, to -$380, and their net income has decreased from -$34M to -$47M.
Overall, OCGN has very high dilution, and has been doing virtually nothing to increase their revenues and grow their business. This to me sounds like the easiest short (bear) position ever. However, is there more to this story than I am considering?
OCGN Stocktwits Talk:
To find out if there is something I am missing I decided to take a look at the messages posted in the OCGN Stocktwits to see what the retail investors see in the OCGN stock.
The majority of bulls are mentioning “production updates”, “emergency approvals”, “FDA Approval”, and “Short Squeeze” as the reason in which they are bullish.
Firstly, with negative revenues, I do not think that their “production updates” will help the OCGN stock.
Secondly, the “emergency approvals” and “FDA Approval” mentions on the OCGN Stocktwits are referring to the fact that OCGN’s Covid vaccine submissions “hold” status has been lifted, and they can continue the FDA approval process. This could result in it being used for emergency situations, and potentially acquiring an FDA approval down the line. I think that even if they get both of these it is too little too late as many of the people who want to be vaccinated already are.
Lastly, and the only reason why I would be scared to go short, is the possibility of a short squeeze. Currently, OCGN has 28% short interest with 0 short shares available (many people are shorting), the lack of short shares has driven the short borrow fees to 17.8%. These high fees will cause shorts to have to cover sooner due to a quicker margin call. However, the days to cover is at 11.6, so if you are looking to short OCGN intraday or for a couple of days, a short squeeze shouldn’t be very worrisome.
Overall Thoughts on OCGN Stock:
Overall, I think the best way to profit off of OCGN Stock is to short it or buy puts. I think that even if they have a large spike that their stock will fall back down below current prices within the days/weeks after a spike. Furthermore, I think the FDA news around Covaxin doesn’t really matter too much, as there are many reputable vaccines already on the market.
Originally published at https://utradea.com.
