Covid-19 vaccine giant Moderna (NASDAQ:MRNA) has been on a tear since the second quarter of 2020. It has grown its top line by over 6,500% on a year-over-year basis due to rampant sales of its Covid-19 vaccine. As a consequence, it now trades at a whopping valuation hardly justified by its long-term outlook. The lack of diversity in its product pipeline and the uncertainty in demand for Covid vaccines makes MRNA stock unattractive for the long haul.
MRNA’s stock’s 1-year price performance has been nothing short of staggering. It has gained 410%, outperforming the S&P 500 by a healthy margin. However, it has slowed down considerably in the past few months.
The FDA’s muted response to the company’s booster shots and the anticipated deployment of Merck’s (NYSE:MRK) highly anticipated Covid-19 pill has weighed down MRNA stock. However, it still trades at roughly 20 times its trailing-12 month sales which is unreasonable.
Third Quarter Earnings Expectations
Moderna is set to report its third-quarter results in the first week of November. The vaccine maker reported a 6,398% year-over-year growth in revenues in the second quarter, so it has a hard act to follow in the third quarter. The key will be how it can shift its manufacturing operations to deal with the demand for booster shots.
Since the Covid-19 vaccine was the only cash cow for the company, investors will be keenly following its sales results and how it will impact future income. Specifically, new advance purchase agreements (APAs) will be critical here, as they’ll underpin the company’s ability to deliver doses in the future. The biotech company expects to make close to $20 billion in APAs from 2020 and another $20 billion through 2022.
However, catering to these APAs will be a tough ask for the company, especially due to the supply-side challenges. Earlier this year, issues with its supply chain led to delayed vaccine deliveries for customers who had paid in advance. Though these problems have been taken care of, the pandemic-led disruptions in the global supply chains are likely to create more complications.
Future Outlook for MRNA Stock
Moderna will likely perform impressively in the next few quarters, but things should change as we get closer to the business end of 2022. Analyst estimates suggest that revenues will drop by roughly 50% by 2023, which is no surprise. The Covid-19 market is bound to slow down with most of the world vaccinated. Moreover, multiple competitors in the fray will leave a relatively small piece of the pie for Moderna.
The problem with MRNA stock is that it is highly undiversified in terms of its product pipeline. It has only a few phase II candidates and zero phase III candidates in development. However, its lofty valuation suggests that it’s a huge pharma player.
Its mRNA drug development platform can become a major money-spinner for the company down the road. However, there’s not much clarity on the platform, making it difficult to speculate on it at this time.
Investors will be keen to scan through Moderna’s third-quarter report to look for updates on its pipeline programs. Some of these include its influenza vaccine and personalized cancer vaccine. However, it’s safe to assume that these programs might never reach the same revenue-making potential that its Covid-19 vaccine did.
MRNA stock has lost a lot of steam as of late, which could be a sign for things to come. Moderna’s future revenue-generating potential is uncertain, considering its unvaried product pipeline. However, MRNA stock continues to trade at an overblown valuation that is likely to cool off in the coming months. MRNA stock is too expensive and not an attractive long-term bet.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Muslim Farooque is a keen investor and an optimist at heart. A life-long gamer and tech enthusiast, he has a particular affinity for analyzing technology stocks. Muslim holds a bachelor’s of science degree in applied accounting from Oxford Brookes University.