When a stock is in a freefall, there's usually a justifiable reason for the decline. But for investors with a high risk tolerance, it could make for a potentially attractive contrarian play. A stock that has fallen to a fraction of its price could possess significant upside if it's able to prove its doubters wrong.
One stock that's down big of late is Iovance Biotherapeutics (IOVA +11.57%). Entering trading this week, the healthcare stock has lost close to 60% of its value in the past three months, and it's down 77% from its 52-week high of $15.99. Has it become a bargain buy and can it make for a worthwhile contrarian pick at this point, or should investors simply avoid this volatile stock?
NASDAQ: IOVA
Key Data Points
Why Iovance stock may possess a lot of potential upside
Iovance could have a bright future ahead as the Food and Drug Administration (FDA) approved Amtagvi last year, as a treatment for unresectable or metastatic melanoma. Analysts expect it to generate well over $800 million in sales by 2029 and project that it may reach blockbuster status (sales of at least $1 billion) by the end of the decade.
That would be a mammoth accomplishment for a business which has only recently begun generating revenue. And with its market capitalization at around just $1.2 billion, it isn't trading at an inflated valuation. But make no mistake -- there's still plenty of risk with the stock.
Why are investors bearish on Iovance?
While Iovance is generating revenue and last year its sales came in at around $164 million as demand for Amtagvi proved to be significant, the problem is that its losses are also rising, and that trend may continue as the company expands its operations. In 2024, its operating costs totaled $559 million -- up 21% from the previous year. And while its net loss did shrink to $372 million (from a loss of $444 million), the company remains deeply in the red.
The big concern is that it's burning through cash at a fast pace. This year, Iovance projects that its cash burn will be under $300 million (in 2024 it used up $353 million over the course of its day-to-day operating activities) as it expands its manufacturing capabilities, but that's significant for a business that reported cash, cash equivalents, and investments totaling just under $324 million for the end of the year.
At such a high rate of cash burn, it's inevitable that the company will need to raise more money via debt or equity, which means more share offerings may be on the horizon, resulting in dilution for existing shareholders.
Is Iovance a stock worth buying right now?
Shares of Iovance skyrocketed last year on news of its FDA approval, but the danger when that happens is the stock price can hit an unsustainable valuation, which has clearly been the case with Iovance. Its market cap today is much more modest, and it can look like a potential bargain buy.
But with cash burn still high and profitability likely many years away, it makes for a challenging road ahead for investors, one that's likely filled with stock offerings and volatile price swings. Given the risk involved, the stock isn't going to be a suitable option for the vast majority of investors. But if you do have a high risk tolerance and are willing to be patient, then investing a modest amount of money could be a potentially good move to make over the long haul.
