Ocugen, Inc. (OCGN) increased 174% to close regular trading hours on Tuesday at $0.805 and then proceeded to rise to $1.38 in after hours trading. Volume was well over 700 million shares on the day. Ocugen announced that it is teaming up with Bharat Biotech to Co-Develop COVAXIN™, a Whole-Virion Inactivated COVID-19 Vaccine, for the US Market. We think that the stock will continue to soar again tomorrow because it's in a unique situation where it can't dilute its shares. We think a fair market cap for OCGN is in the $500 million to $1 billion range given that a company like Vaxart, Inc. (VXRT) trades at a $780 million market cap. At 200 million shares outstanding, that would put OCGN between $2.50 and $5.00 stock price. We are up to 945 followers despite not giving out a lot of alerts, a fact that we think is indicative of a successful, diligent and prudent stock picking history. If you like our picks you can follow our blog by clicking the follow button on the top of the left hand panel as well as follow our Small Caps, Big Gains blog where we put up our Canadian picks. You can also follow us on Twitter @StockTradePicks which has over 4,700 followers.
In addition to the morning press release, OCGN also announced that it will adjourn its Shareholder Meeting scheduled for Wednesday at 11am Eastern. It's delaying item 2 on its agenda, the increase of its authorized shares outstanding while going ahead with the rest of the vote. Initially it wanted to increase the authorized shares from 200 million to 500 million, but now the company is reducing that to 400 million. This updated proposal will be voted on January 13. This is the second time the company has delayed its Shareholder Meeting. In addition to the increase in authorized shares, the company is seeking to perform a reverse split in a range of 1-for-4 to 1-for-20. That proposal is still up for vote on Wednesday.
Considering that it already had to delay its meeting once and is doing it again for the A/S proposal, as well as sending out proxy solicitations, the issue here is clear. The company is worried that it won't get shareholder approval. The company made threats that the stock would be delisted from the NASDAQ by March 8, 2021 if the stock price is still under $1.00 and therefore needed the split.
With the stock price being where it is after hours, the company must figure that it's very unlikely that the reverse split proposal will be accepted, plus in management's own eyes they may deem it to be unnecessary for compliance. That leads to the issue of the authorized shares. Since the company will likely not reverse split the stock to a lower share count, the A/S wall is at risk of being hit shortly.
The company last reported 162 million shares outstanding. Considering an open ATM offering and warrants, it must be near its limit of the 200 million authorized shares. What does this mean? That the company CAN'T do any more financings. It can't dilute the shares anymore. Even if warrants aren't exercised, the shares in the A/S count must be held in reserve for them. Any small cap trader knows the number one rally-killing event on good news is a share offering. At a minimum it can't happen until the A/S proposal is voted on January 13. The company likely reduced the proposal from 500 million to 400 million shares to try to entice more people to vote in favor of it. So there is a good chance that it won't be passed even at that time.
What does this mean? OCGN, instead of using its shares as easy currency to secure funding, management will actually have to work to find non-dilutive sources of funding. In the case of developing the vaccine in the United States, that's likely BARDA funding or non-convertible debt.
Shorts in the Robinhood era are very stupid, except that they think they are smarter than the average investor. They can get away with this thinking because they figure every small cap company will dilute on good news and go back down. Often they are right which gives them an illusion of knowing what they are doing. But that kind of arrogance causes them to not do any research or thinking. OCGN is in a unique position where it is impossible to dilute for at least a couple of weeks and maybe much longer. They are blindly shorting waiting for a financing that WILL NOT COME. Not because management doesn't want to do a financing, but because they can't. Any existing warrants, ATM or dilutive securities that could have taken the shares outstanding to 200 million from 162 million has likely already been absorbed in the more than 700 million shares traded on Tuesday.
This can also benefit longs. There will be plenty of longs out there who flip the stock for a few pennies out of fear that a financing or reverse split is coming. Neither can come until a vote is passed. Listen to the meeting at 11am on Wednesday and if the reverse split it rejected, you know that OCGN is in the clear from any major financings until at least to the 13th. It'll be safe to buy and hold the stock under those circumstances. As stated above, we think OCGN is worth fundamentally $2.50 to $5.00 based on comparable companies trying to bring vaccines to the market. Don't sell too quickly and force the shorts to burn. According to Yahoo Finance data, there were 4.2 million shares short on OCGN, and that almost certainly increased on Tuesday.
What's next for microcap stocks? TradeMiner identifies seasonal trends and market cycles, the Penny Stock Prophet and Microcap Millionaires finds the next big small cap plays in various industries while Addicted to Profits makes trades from a Canadian perspective.
There are also some good books available on microcap stocks and day trading such as:
Mastering Microcaps: Strategies, Trends, and Stock Selection (Bloomberg Professional Library)
The Little Black Book of Microcap Investing: Beat the Market with NASDAQ/AMEX Microcap Stocks, OTCBB Penny Stocks, and Pink Sheet Stocks
Microcap Magic: Why The Biggest Returns Are In Stocks You've Never Heard Of
How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology
How to Day Trade: A Detailed Guide to Day Trading Strategies, Risk Management, and Trader Psychology
A Beginner's Guide to Day Trading Online (2nd edition)
Stock Investing for Beginners: Marijuana Stocks
Here are some other good stock market resources. This includes technical analysis and day trading, dividend stock investing, gold and commodities, sector rotation, options trading and microcap trading strategies:
The dividend stock report from dividendstocksonline.com
Goldmasterinvesting.com Ocean Of Gold Report for the top 15 gold mining companies
Trader Review
The Trader's Academy Club
The Wealth Builder's Club from beatthemarketanalyzer.com
MyBB: A Forum For Investors and Traders
Spartan Trader Forex Academy Live Daily Trading Room
And try the Z Code System if you're looking for other ways to make money systematically outside of the stock market.
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