This ex-penny stock is up 111% in 6 weeks. Should I buy more?

hVIVO (LSE: HVO) was a 10p penny stock a few weeks ago. Now, after rising 21p per share, the small stock is capitalized at £136m.

That can happen with penny stocks. They have the potential to lead north pretty dramatically.

On the contrary, they can also blow (in a bad way). A deposit of 5p might seem surprising when I think about taking it above 50p or even a quid. Then it went down to 1p in a few weeks and I’m still looking at the bright red dud every time I check my portfolio.

Anyway, with hVIVO stock doubling since Christmas, I’m still wondering if I should increase my position.

What does the company do?

As a reminder, the company is a specialist contract research organization (CRO). It is a world leader in infectious and respiratory disease vaccine trials and therapeutics using human challenge trials.

This involves exposing healthy volunteers to the pathogen that the treatment is trying to protect against. The design company then conducts these clinical studies in a special facility in Whitechapel in London.

The company works with some of the world’s largest biopharmaceuticals, and recently won even bigger contracts. The latest £6.8m deal announced this month is with a pharmaceutical client based in the Asia-Pacific to test a respiratory syncytial virus (RSV) antiviral drug candidate.

This will involve hVIVO conducting a Phase 2a double-blind human challenge trial in a quarantine facility to evaluate the antiviral efficacy profile against RSV. The study is expected to start in H1 2024, with earnings generally accepted.

This adds to the company’s growing order book, which reached £76m at the end of December. And this is the second human challenge trial the company has signed with an Asia-Pacific client in 2023. Management expects more deals to follow.

Why do humans attempt challenges?

Human challenge studies are proving valuable for biopharma companies. They offer a faster and cheaper way to access reliable data that tells us whether vaccine and antiviral candidates have genuine potential.

This makes it easier to decide whether to move (or not) a potential treatment to a larger study. These trials are rapidly advancing the drug development pathway.

hVIVO – previously known as Open Orphan – has specialized in this area for over 30 years. It has inoculated about 1,600 volunteers in 28 RSV challenge trials. Overall, it has inoculated more than 3,750 volunteers through more than 70 such studies.

Will I increase my stock?

In light of this new business momentum, management has announced that the company will reward shareholders with dividends. So this means that the company generates income to pay the proposed payment.

And now that the company is profitable, I can determine the price-to-earnings ratio (P/E). The current P/E is around 27. I don’t think that’s too bad, considering the stock has doubled in a few weeks. But it’s not cheap either, so the stock price could pull back in the short term.

I added to my position last month, after buying my first stock in early December. Both buy so far. So I’m happy to hold on to my shares for now.