The Excitement Around Ocugen Is Irrational

Ocugen (NASDAQ:OCGN) is a biotech stock that has made headlines based on news of a vaccine, and mostly on its stock price surge. With a 52-week range of 17 cents – $18.77 per share, it is no wonder why so many are impressed by the stock. Investing $1,000 in OCGN stock one year ago would turn the investment to about $110,000 if the investor was prudent and lucky to sell the shares at its 52-week high.

Still, in early January 2021, the stock was at about $3 per share and went up to about $16 per share during the first 10 days of February. Interestingly enough, the stock is now trading near $10 per share.

So OCGN stock is a highly volatile biotech stock. And a very risky one. But what I want to focus on most is that, based on the fundamentals of the company, OCGN stock is too overvalued. And if I had to write a book or report about the recent stock bubble, I would absolutely put it on my list.

OCGN Stock: Another Coronavirus Vaccine News Story

First of all, let’s start with the basics. What is Ocugen’s primary business activity? According to data taken from Yahoo! Finance “Ocugen, Inc., a clinical stage biopharmaceutical company, focuses on the discovery, development, and commercialization of transformative therapies to cure blindness diseases.”

The big news is that Ocugen has a strategic partnership with “Bharat Biotech for the commercialization of [coronavirus vaccine] COVAXIN in the United States market.”

I was a bit skeptical at first, as I strongly believe in specialization of individuals and companies. It is always a better idea to try and become an expert or authority in one field, rather than to try to be good at many sectors. For Ocugen, I wondered how it decided to shift its research and development from blindness diseases to developing a vaccine for the novel coronavirus.

The answer seems to be that coronavirus vaccines are now a hot theme for societies, economies and businesses. So, although I am skeptical, I will agree that the purpose of any business is to make money, be profitable and — if it is a public company — to maximize its shareholders’ value. For a biotech company, it is pure research and development. And Ocugen can temporarily focus its research on the fight against the coronavirus.

Ocugen Has Come to a Hot Business Too Late

Ocugen and its coronavirus vaccine, named Covaxin, are already on the market in India. It has, as mentioned above, a strategic partnership with Indian company Bharat Biotech to market and distribute the vaccine. The good news is that back in January 2021 Bharat Biotech won emergency use authorization (EUA) for its vaccine in India, which is the world’s second-most-populous country.

But what about the U.S.? Here comes the toughest question for Ocugen and its stock.

The U.S. government has signed deals with other pharmaceutical companies, such as Pfizer  (NYSE:PFE) and Moderna (NASDAQ:MRNA) to manufacture and provide their coronavirus vaccines.

This is also true for the European Union as well. These contracts are binding and costly. And it took plenty of time for the coronavirus vaccines to get officially approved for their use.

Most importantly, the contracts of Pfizer and Moderna may be already sufficient to cover the needs of the coronavirus vaccination for the U.S. in 2021. Therefore, my argument is that Ocugen seems to have shown up too late to the coronavirus vaccine party.

Ocugen Fundamentals: No Sales, No Profits

The company has a market capitalization of $1.88 billion. And for the three consecutive years of 2019, 2018 and 2017, it has zero revenue. Operating income and net income are both negative for all three years.

Then you read the headline, “Ocugen’s stock triples on massive volume after institutional investors buy stock at a 27% premium.”

For me, this is pure speculation. While institutional support is positive for the stock, the fundamentals are very poor. For a company with no revenue to have this market capitalization is insane.

While many investors have driven the OCGN stock to an astronomical return too fast, too soon, I do not find any fundamental reason now to support the stock price. Yes, prospects may seem great, but it is all just based on possible scenarios.

Can the company start making revenue finally? What will be the gross profit, net margin, free cash flows? Now, the only factor that’s driving the stock higher is positive euphoria. It’s too risky. And completely unjustified by the current valuation.

Should You Buy OCGN Stock?

The stock is suitable only for speculation and for investors that have an investment philosophy that is fine with high risk, in the hopes of great returns. Being a financial analyst, I have to pass on hopes and wishes and joining a late FOMO rally. I have a rule that valuation and fundamentals are at the top of my investment criteria. OCGN stock fails in both of them right now.

Not all biotech stocks are the same. Yes, most of them are risky. But OCGN stock is not just too risky, it is insanely overpriced. No second thoughts on that.

On the date of publication, Stavros Georgiadis, CFA, did not have (either directly or indirectly) any positions in the securities mentioned in this article.