Buy, Sell, or Hold: Vical Incorporated (VICL)

Vical’s financial statements offer a few concerns. Its revenue growth has been bumpy, and its net earnings have been net losses for quite a few years. On the plus side, though, it has plenty of cash and little debt. Its free cash flow is negative, reflecting a cash burn of less than $20 million annually, but its cash of $86 million in its last quarter should last it several years.

Don’t like volatility? Perhaps steer clear of Vical. Check out its annual returns from 2008 to 2012: down 67%, up 133%, down 39%, up 118%, down 34%. So far this year, it’s up about 23%.

Dilution is another concern, as Vical’s share count has more than doubled from about 40 million in 2008 to around 86 million million recently. The more shares there are, the smaller each one’s stake is in the company. Dilution is generally not desirable, but it reflects a company generating more funds, which might be deployed to help the company grow faster. So it’s not necessarily a deal-breaker.

Finally, Vical’s valuation isn’t the most attractive, per a few measures. Its P/E ratio is negative, as its bottom line is in the red. Its price-to-sales ratio is a hefty 16, well above its five-year average of 11.6 and the industry average of 6.5.

Hold (off)
Given the reasons to buy or sell Vical, it’s not unreasonable to decide to just hold off on it. You might want to wait for a series of quarters featuring net gains instead of losses, or for one or more drugs in Vical’s pipeline to gain regulatory approval, paving the way for revenue and profits.

You might also check out some other interesting biotech companies, to see if they seem like better bargains than Vical. Perhaps take a look at Dynavax Technologies Corporation (NASDAQ:DVAX), which has a vaccine against hepatitis B nearing a regulatory decision. It’s a promising market, and the company is looking into getting the drug approved for other treatments. It, too, is a penny stock, though, with some red flags.

The verdict
I’m holding off on Vical for now. Everyone’s investment calculations are different, though. Do your own digging and see what you think. The company may perform spectacularly in the coming years, but remember that there are plenty of compelling stocks out there.

The article Buy, Sell, or Hold: Vical originally appeared on Fool.com and is written by Selena Maranjian.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, has no position in any stocks mentioned. The Motley Fool owns shares of Dendreon.

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