You’ve read the headlines. Stocks across the globe are getting hammered on concerns that the rapidly spreading coronavirus outbreak may inflict a bigger hit on the global economy than previously expected. But not all stocks are falling off a cliff. Instead, a few “coronavirus stocks” are actually rallying as the virus spreads. Moderna (NASDAQ:MRNA) stock is one such name.
Moderna is a clinical-stage biotech company which utilizes messenger RNA (or mRNA) to develop treatments and vaccines.
The company is developing an mRNA-based vaccine for the coronavirus. In just 42 days, Moderna created mRNA-1273, a potential coronavirus vaccine. That vaccine has since been shipped to U.S. government researchers at the National Institute for Allergy and Infectious Diseases. Clinical trials of the vaccine will begin in April.
All of this favorable news has led to a huge rally by MRNA stock in recent weeks. So far this year, its shares are up more than 43%.
In the long-term, the shares can rally further, but they won’t jump in the short-term.
Moderna Is a Great Company
Moderna has a great deal of potential and is well-positioned to do very well over the long-term.
Moderna is trying to tap into the power of mRNA sequencing to develop a new class of medicines. That’s a great idea. By leveraging mRNA sequencing, the company could potentially develop robust, valuable therapeutics and vaccines. And Moderna is the best in the world at doing that. Look how quickly it developed its potential coronavirus vaccine.
But that vaccine is really just a sideshow at this point. The long-term growth outlook of Moderna is less about coronavirus and more about the huge potential of the mRNA-based vaccines that the company is developing for other conditions like congenital cytomegalovirus (CMV).
CMV is a common infection and a leading cause of birth defects in the U.S. About 0.65% of U.S. newborns, or about 25,000 newborns per year, are infected with CMV. About 20% of newborns with CMV infection have a permanent neurodevelpmental disability. Between 10% and 30% of babies with severe CMV disease will die in their first year of life.
Clearly, CMV is a big problem. And there’s currently no solution for the problem.
But Moderna has developed a potential CMV vaccine that has shown promising results and is in late-stage clinical development. The peak sales of that vaccine, if approved, could reach roughly $3.5 billion, with 50% pre-tax margins, according to the company.
That’s $1.75 billion of pre-tax profits. The company won’t have to pay much taxes because it will be able to deduct its operating losses from previous years. So it will have net profits of $1.5 billion-plus. Based on that profit and a forward price-earnings multiple of 12, which is average for biotech stocks, Moderna’s market cap would be $18 billion if just one of its mRNA vaccines proves to be effective.
Its market cap today stands at $10.3 billion.
Beware the Hype
In the near-term, Moderna’s stock looks overextended due to hype about its potential coronavirus vaccine.
MRNA stock has risen tremendously almost exclusively because of its coronavirus vaccine. Before the company shipped the first batch of its coronavirus vaccine to U.S. health officials, Moderna stock was trading around $18. Just a few days after the company shipped that first batch, Moderna stock popped to $30.
Clearly, hype about the vaccine is driving the stock’s recent strength.
The problem is that this hype may not be sustainable. No one really knows if mRNA-1273 will protect people against coronavirus. Even if it does, there’s no certainty that Moderna will make a dime off of it or that it will be used anywhere. That’s mostly because it’s unclear how companies will obtain revenue from coronavirus vaccines, while many other biotech companies are also racing to find a vaccine.
All in all, the recent gains by Moderna stock seems overdone. Soon enough, the hype about it will likely deflate. If it does, the stock looks susceptible to a significant pullback.
Bottom Line on MRNA Stock
Moderna is a great company, and MRNA stock will be a winner over the long-term. But in the near-term, its recent gains on the hype of its coronavirus vaccine makes the stock unattractive now.
That hype will soon fade. When it does, Moderna stock will drop, creating a good buying opportunity.
Luke Lango is a Markets Analyst for InvestorPlace. He has been professionally analyzing stocks for several years, previously working at various hedge funds and currently running his own investment fund in San Diego. A Caltech graduate, Luke has consistently been rated one of the world’s top stock pickers by various other analysts and platforms, and has developed a reputation for leveraging his technology background to identify growth stocks that deliver outstanding returns. Luke is also the founder of Fantastic, a social discovery company backed by an LA-based internet venture firm. As of this writing, Luke Lango did not hold a position in any of the aforementioned securities.