[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 it too late to buy Moderna (NASDAQ:MRNA) stock? The prospective novel coronavirus vaccine has made much headway in recent weeks. But many other biotech firms have a candidate in the pipeline. What makes this company the best contender?
Firstly, Moderna is moving quickly with clinical trials. Perceived “first mover advantage” gives investors a lot of confidence.
Secondly, the U.S. government gave the company $483 million to speed up development. That’s tremendous social proof for the company’s prospective mRNA-1273 vaccine.
In short, no surprise why MRNA stock has soared in recent weeks. Shares have climbed from around $30 per share April 1 to around $55 per share today. In other words, a more-than 80% return in just a few weeks!
Should you join in? Not so fast! Moderna shares today trade a rich valuation. Investors are pricing in much of the potential gains from not one, but two vaccines (more below). Shares could fall back if results fail to match up with expectations.
I know, it’s fun to speculate on biotech stocks. Especially when it ties into a newsworthy event. But running through the details, it’s too late to jump on the Moderna bandwagon. And with shares appearing to be topping out, those who bought shares early should consider cashing out.
Coronavirus Vaccine and MRNA Stock
Are investors (or should I say, speculators) wearing rose-colored glasses when talking about this stock? It’s not as if Moderna can test a vaccine, get it approved, and start selling it worldwide in a matter of months. It’ll still take 12 to 18 months to bring it to market.
Yes, the company has been cleared to move its mRNA-1273 vaccine into phase 2 clinical trials. But what if these trials show disappointing results? There are no guarantees when it comes to biotech plays.
So, with this catalyst a bit of a gamble, are there other factors at play with MRNA 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 MRNA stock price. Before coronavirus sent shares higher. The company’s market capitalization now stands at around $18.1 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 283.7. 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 374.1.
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 63.2. 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 MRNA stock.
Moderna shares would rally 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 MRNA stock could be lower given their other catalysts. But that’s hardly a great reason to buy, as coronavirus speculators bid shares to unsustainable levels.
Sell Moderna Stock As Shares Remain Above $50 Per Share
Don’t buy MRNA stock because you think they’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 MRNA stock for the CMV or the coronavirus catalyst, it’s clearly time to sell. With shares appearing to be topping out, 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.