[Editor’s Note: “Sell Moderna (MRNA) Stock as Covid-19 Catalyst Inflates Valuation” was originally published April 2, 2020. It is regularly updated to include the most relevant information.]
Is the party over for Moderna (NASDAQ:MRNA) stock? Shares soared in May as the company’s novel coronavirus prospects looked bright. But now, with investors selling off vaccine plays, the days of this being a “hot stock” may be coming to an end.
Granted, this doesn’t mean “game over” for their prospective mRNA-1273 vaccine. Quickly moving through clinical trials, they could have a vaccine available for use by the end of the year.
Perceived “first mover advantage” is one thing Moderna has going for it. Another is social proof, courtesy of the U.S. government. With a former exec leading the White House’s vaccine efforts, it seems Moderna has yet another edge.
Yet, as investors have either cashed out, or lost love, for MRNA stock, shares have taken a hit. Just a few weeks ago, the stock was parabolic, hitting prices as high as $87 per share.
Now? Things aren’t so hot anymore. Shares now trade around $53 per share. But, could today’s pullback being a buying opportunity?
Not so fast! Moderna shares still trade at a rich valuation. Investors continue to price in much of the potential gains from not one, but two vaccines (more below). In short, shares could tumble further if both efforts wind up being fruitless.
I know, it’s fun to speculate on biotech stocks. Especially when it ties into a newsworthy event. But, as Moderna stock trends lower, it may be too late to ride the coronavirus vaccine wave.
Coronavirus Vaccine and MRNA Stock
What a difference a few weeks makes. On May 18, news of positive preliminary findings put Moderna shares into hyper-drive. But, vaccine experts went through the details. According to them, the recent news revealed little about the vaccine candidate’s effectiveness.
But, don’t take this pullback as being an invitation to buy. Considering so much has been priced into shares, investors still face big potential losses if things don’t pan out.
So, with this catalyst a bit of a gamble, are there other factors at play with Moderna’s stock? Yes. As InvestorPlace’s Luke Lango discussed March 5, there’s huge potential for the company’s prospective vaccine for CMV, or congenital cytomegalovirus.
Creating a vaccine for this major cause of birth defects may be an even greater catalyst for Moderna. Based on Lango’s analysis, if all goes right, the company could generate billions in pre-tax profits if it receives Food and Drug Administration (FDA) approval.
But this catalyst was already reflected in the stock price of MRNA. Before coronavirus sent shares higher. The company’s market capitalization now stands at around $20.3 billion. In short, the company needs its prospective CMV vaccine to go without a hitch. Any bump in the road could send shares cratering.
So would dashed hopes of mRNA-1273 becoming the first Covid-19 vaccine. Considering investors have priced in both catalysts, it’s tough to justify a buy.
Other Vaccine Stocks Could Offer Better Value
The recent run-up in Moderna stock means shares trade at a rich valuation. The company’s enterprise value/sales (EV/Sales) ratio currently stands at 365.6. That’s a lot more reasonable than another coronavirus vaccine play, Inovio (NASDAQ:INO). That company’s shares trade at a EV/Sales ratio of 734.8.
But, if you’re looking for a pure coronavirus vaccine play, there are other opportunities selling at lower (yet still frothy) valuations. Take, for example, iBio (NYSEMKT:IBIO), which currently trades at a EV/Sales ratio of 164. They aren’t the strongest coronavirus vaccine play out there. But, a binary play like iBio may be a better than a more diversified one like Moderna.
Moderna shares would bounce back if their vaccine shows success. But the potential rise in its stock price, percentage-wise, likely isn’t as great as you’d see with an iBio or an Inovio.
You could take that as a positive. A less binary play, downside for Moderna could be lower given their other catalysts. But that’s hardly a great reason to buy, as the share price remains inflated due to past coronavirus speculation.
Sell Moderna Stock as Shares Go Parabolic
Don’t buy Moderna because you think it’ll strike gold with a coronavirus vaccine. Other vaccine contenders could offer a more promising risk/return proposition.
Moderna stock does bring a lot more to the table. Their CMV vaccine catalyst could really move the needle if it pays off. But, this doesn’t make shares a low-risk opportunity. If that vaccine fails to deliver, much of the stock’s rich valuation would evaporate overnight.
Whether you bought stock in MRNA for the CMV or the coronavirus catalyst, it’s clearly time to sell. With shares heading lower, cashing out today could be the best call.
Thomas Niel, contributor to InvestorPlace, has been writing single-stock analysis since 2016. As of this writing, Thomas Niel did not hold a position in any of the aforementioned securities.