In the slightly crazy space that global stock markets have become over recent months, I’ve seen some large moves. The GameStop saga is one of the most prolific cases, where retail investors drove the stock up incredibly quickly in a matter of days. Another case has been getting a lot of attention over the past couple of weeks. This is Second Sight Medical Products (NASDAQ:EYES). The stock is up almost 1,000% since the start of March, and 300% over the past year.
What’s the story?
Second Sight Medical Products is a US-based company that makes and sells unique implantable visual prosthetics for blind people. The business has been around for a while, having been founded in 1998. From looking at the share price over the past few years, it looked like the best days for EYES shares were in the past. EYES shares traded above $100 a share back in 2015, before trending down over recent years.
Losses started to stack up at the business. In 2017 the net loss was $28.5m, and in 2018 this rose to $35.1m. The treatment is expensive (revenue per implant is over $100k) and the cost of operations are high. As a result, EYES shares became heavily shorted. This means that investors thought the share price would fall further. They would profit by shorting the shares and buying them back at a lower price.
The move higher only really started a few weeks ago, driven by company news and a reduction in short-selling. Firstly, speculation of upcoming FDA approval for the firm’s Argus 2s Retinal Prosthesis System gained interest. This saw EYES shares rallying, causing short-sellers to cut down their positions. By closing out a short position, they have to buy back the stock, which compounds the move higher.
At the start of this month, confirmation of the FDA approval came out, seeing the share price explode higher.
Do EYES shares have further to run?
So will EYES share continue to rise. I think they will. The percentage return looks high, but that’s because it started from a low price to begin with. As of close yesterday, it was trading just below $16. So there’s still plenty of room to go even before it reaches the levels it was traded at back in 2015 (above $100).
But I’m not looking at it because of some crazy share price movements. Company fundamentals matter to me.
Basic earnings per share are still negative, but becoming less so. Q3 2020 EPS was -$0.07, up from Q2’s -$0.15 and Q1’s -$0.57. If we see this trend get back into positive territory, I think it could attract more longer-term investors. I acknowledge at the moment a lot of buyers are using EYES shares for speculation, but this could change if the fundamentals of the business continue to improve.
The risk with EYES shares is the gulf between getting approval for a product and making the product commercially successful. There’s no guarantee that the Argus System will be a huge revenue generator for the company.
All things considered, I do think EYES shares have potential but wouldn’t buy right now. I’d wait to see how the business progresses in coming months after the buzz has died down before looking to buy.
