It’s rare these days that I put a big lump sum into a new investment, especially a penny stock. I’ll instead open a small starter position once I’m satisfied with my initial findings. Then I’ll wait and learn more.
I’ve found having some ‘skin in the game’ – however little – reduces the fear of missing out (FOMO) if the stock suddenly rises. But it also reduces potential regret about investing a large sum of cash if the stock falls.
That’s what has happened with hVIVO (LSE: HVO) shares recently. As I type, my small holding is up 30% in a few days. But now I’ve looked further at this stock, I’m adding to my position. Here’s why.
The company
hVIVO is a specialist contract research organisation (CRO). Its niche is in testing infectious and respiratory disease vaccines and antivirals using human challenge clinical trials. Its clients include four of the top 10 global biopharma companies.
These trials involve recruiting healthy volunteers and infecting them with a particular pathogen, in order to investigate the efficacy of its clients’ drug candidates. Recruits are kept in quarantine for two or three weeks at its specialist facility, where they’re monitored throughout to see if the treatment works. The danger here is obvious.
Despite these inherent risks, human challenge trials significantly speed up the process of discovering whether a treatment actually works. hVIVO has staged more than 60 such studies, and conducted the world’s first human challenge trial for Covid in 2021.
The firm also runs FluCamp, a popular programme in London testing new flu vaccines.
Business momentum
Late last year, the company signed a deal worth £13.6m to stage a phase II RSV (respiratory syncytial virus) challenge trial. This followed a £14.7m influenza antiviral contract signed in June. These were hVIVO’s largest deals to date.
Then this week, the firm announced it has signed a £5.2m contract with a global biotechnology company headquartered in Asia Pacific. This trial will test another RSV vaccine candidate.
The study is expected to commence in H2 2023, with the revenue being recognised across 2023 and 2024. Needless to say, this geographic expansion into the vast Asia-Pacific region could unlock significant long-term growth.
CEO Yamin ‘Mo’ Khan commented: “I am optimistic that more biopharma companies in the APAC region will increasingly recognise both the value of human challenge trials and hVIVO’s reputation as the ‘go-to’ partner in the market.”
The firm’s sales this year are expected to be just under £50m, including £7m in underlying profit. In 2023, the top line is expected to grow to £54.7m, with almost £10m in underlying earnings. However, these figures could now be revised upwards.
The stock
Despite this operational progress, the hVIVO share price is only up 13% in the last six months. Over one year, it’s down 42%.
hVIVO’s current market cap is £90m. The penny stock has a forward price-to-earnings (P/E) ratio of 18. It has a price-to-sales (P/S) ratio of 2.7. This seems cheap to me, considering the improved growth prospects.
In fact, this leads me to believe that the shares are potentially undervalued. I think the company has a strong and sustainable growth model that will one day be reflected in a higher share price.
