Has the music stopped for Inovio (NASDAQ:INO)? Shares in the biotech name soared when the coronavirus from China first made headlines. If you bought INO stock in early January (when shares traded just above $3/share), you would’ve made quick profits selling into the news. Shares traded as high as $5.95/share late last month, but as hype faded, shares started to creep downward.

News of an increased equity offering didn’t help either. Inovio has a history of diluting its stock via equity raises. Valuation has also reached frothy levels. Yet, is it shrewd or foolish to go bearish on Inovio? Their coronavirus catalyst is a long shot. But, shares could rebound if speculation resumes.

Expertise in biotech stocks may not help you make a winning play in INO stock. With its coronavirus vaccine only in early stages, it could be a while until we see results. Until then, speculation, not fundamentals, will drive price action.

Let’s dive in, and see why you should stay on the sidelines with INO stock. Even as the hype starts to leave the room.

Is the Party over for INO Stock?

It seems only now that coronavirus fears have hit the market. The past week’s massive sell-off seems like a delayed response. Considering what this crisis could do to the global economy. Yet, Inovio stock was already moving lower. Even as the markets shrugged off the crisis.

With INO stock moving lower, is now the time to “buy the dip?” Far from it! Diving into the details, it’s clear shares are not a screaming buy. Inovio’s coronavirus catalyst is no slam dunk. As InvestorPlace’s Chris Lau discussed Feb. 13, Inovio threw its hat into the ring with its announced collaboration with Beijing Advaccine to further develop its INO-4800 vaccine.

In other words, Inovio is miles away from bringing a treatment to market. Given their track record, it’s tough to be confident that their press releases will translate into tangible results.

Yet, whether they succeed or fail may not matter to Inovio. Dilution is the name of the game with INO stock. As InvestorPlace’s Ian Bezek discussed, Inovio has increased its share count nearly four-fold in the past decade. As InvestorPlace’s Will Ashworth wrote, Inovio’s announced shelf offering could be a red flag.

Why? It appears that Inovio is seizing the opportunity by raising much-needed capital. Their financing move is a ploy to keep the lights on. It’s not to fund coronavirus vaccine development. However, despite this red flag, INO stock is not a strong short candidate. Inovio may have weak fundamentals. But that may not stop speculators from bidding this name higher.

It May Be Risky to Go Short

With the shelf offering, Inovio is striking while the iron is hot. Past dilution didn’t work out well for Inovio investors. As this Seeking Alpha contributor recently wrote, Inovio pulled a similar move in 2017. In that situation, shares cratered in the years following the offering.

Another reason INO stock could go lower? Valuation. With the outbreak priced into shares, Inovio trades at an enterprise value/sales (EV/Sales) ratio of 60. In comparison, fellow coronavirus stock Novavax (NASDAQ:NVAX) trades at an EV/Sales ratio of 28. Even among richly-priced peers, Inovio is overvalued.

Yet, these factors may not stop INO stock from rebounding. In short, you could easily lose money going bearish on Inovio. Speculation drives this stock, not fundamentals. For example, let’s say coronavirus outbreaks hit the U.S. in a big way. Even if Inovio’s prospective treatment is years away from being marketable, speculators jump back in, sending shares back to prior levels.

INO stock may be a great short if shares go above their 52-week high. But, at today’s prices, shares could spike higher just as easily as they could drop lower.

With INO Stock, Stay on The Sidelines

It’s hard to justify buying INO stock. It doesn’t matter Inovio has a coronavirus catalyst. There’s too much working against the company. Between dilutive equity raises and a rich valuation, opportunity does not outweigh risk.

Yet, shorting INO stock may not be a smart move. The crisis is no longer limited to China. What happens if an outbreak hits the U.S.? Speculators could rush in again, sending shares higher. In other words, a black swan event (coronavirus outbreak) causing a black swan event (overvalued Inovio stock soaring overnight).

With this in mind, what’s the best play? Stay on the sidelines. INO stock is too overvalued to go long. But, unpredictability makes it a weak short candidate. Staying on the fence may be the best move.

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