Modern‘s 09.30 NASDAQ: MRNA the momentum of the rising stock price seems to be fading. In 2020, stocks of biotech products increased by more than 430% due to investor excitement over its COVID-19 vaccine, mRNA-1273. Moderna also started this year positively, with stock growth of over 75% in early February. Since then, it has been mostly downhill.
Some investors may be of the opinion that the last few weeks have been only a temporary decline. Others might see Modern as a once hot biotech stock with an unjustifiably high valuation that is in the early beginnings of a continuous decline. If this last approach is right, the opportunity for a solid comeback with Modern went along the way. But is it really too late to buy shares of Moderna?
Fewer major catalysts in the short term
Major catalysts such as positive clinical updates and regulatory victories generally drive large gains for biotech stocks. The bad news for Moderna is that they will have fewer opportunities to deliver this type of catalyst in the near future.
Investors already know that mRNA-1273 ranks among the leading COVID-19 vaccines based on efficacy. They are fully aware that Moderna is making over $ 18 billion in sales of the vaccine this year alone. As a result, the market capitalization of Modern is close to $ 55 billion.
Certainly, several potential catalysts for Modern are on the way. The company could exceed expectations in its quarterly updates. Conducts clinical studies evaluating mRNA-1273 in adolescents and young children, and positive readings of data from them could increase inventory. Moderna also plans to advance its cytomegalovirus (CMV) vaccines in the late stages of testing and expand the number of clinical programs in its work.
However, none of these potential catalysts will spectacularly move the needle for Modern. They also present an opportunity for the company to bring disappointing news that causes stocks to fall.
Possible income incentive Modern
There is one big potential game change for Modern that could mean that the stock is actually undervalued instead of overvalued. And it’s obvious when you think about it.
Shares of Moderna are trading below 3 times the expected sale. It is a multiple price to sale that would make sense for a bank or insurer. However, biotech stocks currently trade more than 8 times on average. Large pharmaceutical stocks have an average P / S ratio close to 5.
Why is Modernin P / S many times so much lower than the average of the biopharmaceutical industry? Because investors generally do not believe that the huge income it has on its way to 2021 will be sustainable. They seem to think that demand for COVID-19 vaccines will fall when the pandemic is brought under control. But what if that view is wrong?
Moderna executives have said in the past that they predict that the COVID-19 market will develop into something more like a seasonal flu market. Pfizer CFO Frank D’Amelio recently said the giant drugmaker expects annual vaccinations to be needed to control the threat of coronavirus. He also hinted at a potential price increase for Pfizer’s COVID-19 vaccine in the future.
If Moderna can regularly generate anywhere close to the level of revenue to be generated in 2021, stocks should have room to grow. That is not an unrealistic expectation. In fact, Moderna’s average revenue estimate from 2022 is about $ 13 billion. That’s almost three-quarters of what he expects this year. It also gives the company a P / S of just over 4 – still below the industry average.
Too late – but not too late
It is my view that Modern’s estimate is not too steep given the real possibility that biotechnology will henceforth have large returns. I also think his pipeline could create some big winners in the next decade.
For example, Moderna is developing the next generation of COVID-19 vaccines that could be even better than mRNA-1273. This vaccine may require only one dose and should be able to be stored in standard refrigerators. If the candidate is successful in clinical studies, Moderna would likely be in an even stronger position in the COVID-19 vaccine market in the long run.
The company estimates that the CMV vaccine, which would go into key trials this year, could generate a maximum annual sales of between $ 2 billion and $ 5 billion if approved. And I’m asking Moderna to launch more messenger RNA vaccines targeting other widespread viruses like the flu in the next few years.
It is unrealistic to expect Modern to more than quadruple in value in one year as it was in 2020. But while it is too late to enter that kind of astronomical gain, it is my opinion that it is not too late to buy stocks.
This article presents the opinion of a writer who may not agree with the “official” position of the Motley Fool premium advisory service recommendation. We are colorful! Examining the thesis of investing – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier and richer.