Close Your Eyes and Count to Ten Lets Do the Alphabet Again
News of it obtaining regulatory approval for its flagship product has sent Second Sight (NASDAQ: Optics ) stock to the moon. Where's this retinal health play headed from here? That'due south the question on the minds of investors, who likely weren't enlightened of this company before its game-changing news.
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Later surging from under $ii per share to prices over $10 per share, you lot may feel tempted to dive into shares, specially every bit information technology retreats closer to $8, simply a petty circumspection may be warranted.
The prospects for its Argus 2s Retinal Prosthesis Arrangement may have improved materially, but that'due south no guarantee shares will brand another triple-digit move.
Investors are probable to continue selling the news assuming meme stock mania doesn't come back for yet another round, This may point to a movement back to mid-single digits for the stock. Once this happens, information technology may exist a risk worth taking.
Diving into the details, in that location's a lot more going on than contempo headlines advise. Taking your time looks to exist the best move.
There'southward More to Eyes Stock Than Just Its Recent FDA News
Much of the give-and-take with Second Sight has been about how its prosthesis production can assist those with severe retinitis pigmentosa. While the news of the product obtaining Nutrient and Drug Administration (FDA) approval is important, there'southward much more at play hither with this company.
Earlier this news, the latest with EYES stock has been the pending business combination with French vision health company Pixium Vision. The bargain, which is not a full-on merger, volition give Pixium a controlling involvement in the company.
The recent FDA news hasn't resulted in any changes to the bargain. It volition still be under the terms announced back in January.
However, this business combination could affect whether this newly-canonical product fifty-fifty gets produced. The newly-combined entity may decide to ahead with bringing the product to marketplace. Or, it may wind up adapting it for employ with 2d Sight's existing Orion platform.
In short, it's nevertheless unclear how much the approval of Argus 2s improves things for Optics stock. As more information comes out, investors could continue to re-assess its current valuation.
Possible Dilution Ahead
In conjunction with the Pixium Deal, 2nd Sight also plans to conduct a $25 one thousand thousand capital raise. This financing will help get the company on ameliorate financial footing. It makes sense why EYES was a penny stock, until recently.
Generating less than $500,000 in revenue last year, it's been burning through cash. Its current war chest ($three.2 million as of December 31) is far from enough to continue the lights on.
Unfortunately, this upper-case letter enhance will hateful shareholder dilution. With the stock at double-digit prices, and its electric current market capitalization standing at most $300 million, raising $25 million isn't going to practice much in the dilution section.
However, it's even so a factor that could downwards force per unit area on the stock. Especially, if following the recent news, the company doesn't come up out with subsequent game-changing developments.
Besides, while meme stock madness among Reddit investors may help to continue the stock elevated for now, what happens if the current enthusiasm for speculative biotech stocks fades from here?
Even if things remain good for Second Sight, the stock could experience a pullback if we see an across-the-lath correction for this sector. So, how low could Eyes stock go, if investors determine to cash out their fast gains?
I wouldn't worry about a movement back to beneath $2 per share. The Argus 2s goad may exist enough to keep shares at prices above prior levels even if it winds up not changing the visitor's fortunes in the long-run.
Take off the Rose-Colored Glasses
Later a year of near-zero revenue, and significant greenbacks fire, the FDA news is definitely a welcome evolution. The stock's ballsy upward move was partially justified. Diving into the details of this news, it may be wise to accept off the rose-colored spectacles and bear some more than research.
It's still early on to tell whether this company volition see big financial success from this production. It's even questionable whether this product volition be released in its current form or if it'll exist adjusted into the existing Orion system.
Add in the awaiting uppercase enhance, and dilution concerns are on the tabular array too. Speculative mania over low-priced stocks may help it hold onto most of its gains. But, we could still see Eyes stock fall to lower prices. Expect for a bigger dip earlier ownership.
On the date of publication, Thomas Niel did not (either directly or indirectly) concur whatever positions in the securities mentioned in this article.
Thomas Niel, a contributor to InvestorPlace, has written unmarried stock analysis since 2016.
Source: https://investorplace.com/2021/03/eyes-stock-approach-with-critical-eye/
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