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hVIVO (LSE: HVO) was a 10p penny stock a few weeks ago. Now, after rising 21p per share, it is a £136m capitalized small-cap stock.
This is what can happen with penny stocks. They have the potential to move dramatically north.
Conversely, they can also blow up (in a bad way). A 5p stock might sound attractive to me as I imagine it shooting up to 50p or a quid. Then it drops to 1p in a matter of weeks and every time I check my portfolio I see a bright red color.
Anyway, hVIVO stock has doubled since Christmas, I’m wondering if I should add to my position.
What does the company do?
As a reminder, the firm is a specialist Contract Research Organization (CRO). It is a world leader in the testing of infectious and respiratory disease vaccines and therapeutics using human challenge trials.
These involve exposing healthy volunteers to the pathogen from which a treatment is being tested to prevent it. The company then designs these clinical studies at its dedicated facility in Whitechapel, London.
The company works with some of the biggest biopharmaceuticals in the world, and it’s been winning big contracts lately. Its latest £6.8m deal announced this month was with a pharma client based in the Asia-Pacific to test its respiratory syncytial virus (RSV) antiviral drug candidate.
This will involve conducting a Phase 2a double-blind human challenge trial at its quarantine facilities to evaluate the efficacy profile of the antiviral hVIVO against RSV. The study is expected to begin in the first half of 2024, with most of the revenue generated then.
This adds to the firm’s growing order book, which had already reached £76m by the end of December. And this was the second human challenge trial the company has signed up for 2023 with an Asia-Pacific client. The management expects more such deals to happen.
Why Human Challenge Testing?
Human challenge studies are proving incredibly valuable to biopharma companies. They provide a faster and cheaper way to access reliable data that tells them whether their vaccine and antiviral candidates have real potential.
This makes it easier to decide whether (or not) to move potential treatments into larger studies. So these tests fast forward the drug development path.
hVIVO — formerly known as Open Orphan — has been specializing in this area for more than 30 years. It has already vaccinated around 1,600 volunteers in 28 RSV challenge trials. Overall, it has vaccinated more than 3,750 volunteers in more than 70 such studies.
Shall I add to the stock?
In light of this recent trading momentum, management has announced that the company will reward shareholders with a dividend. So it means that the company is producing earnings to afford this proposed payment.
And now that the company is profitable, I can actually assign it a price-to-earnings (P/E) ratio. The current P/E is around 27. I don’t think that’s too bad, considering that the stock doubled in just a few short weeks. But it’s not cheap either, so the share price could pull back in the short term.
After first buying the stock in early December, I added to my position last month. Both the buys are up so far. So I am happy to hold my shares for now.
Post this X-penny stock is up 111% in 6 weeks. should i buy more? First appeared in The Motley Fool UK.
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Ben McPoland holds positions in hVIVO Plc. The Motley Fool UK has no position in any of the stocks mentioned. The views expressed on the companies mentioned in this article are those of the author and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a wide variety of insights makes us better investors.
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