OOne of the easiest tips to be a good investor is to stop and catch your breath before buying a stock. Taking a break defuses the tension that often leads to impulse (and potentially catastrophic) buying, and it also forces you to weigh the arguments surrounding your action. This is a great habit to get into, even if you plan to get yourself a stock that a lot of people are rightly optimistic about, like the vaccine developer. Moderna (NASDAQ: mRNA).
Moderna’s victory with its recently approved coronavirus vaccine will keep the company safe through the next few years and will likely enrich its investors along the way. Nonetheless, people who plan to invest in Moderna in the near future should understand its challenges ahead before proceeding.
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1. Revenue from COVID-19 vaccine may not last forever
In the last quarter of 2020, Moderna made $ 571 million in revenue, of which $ 200 million came from sales of coronavirus vaccines, government grants and drug development collaborations making up the rest. In 2021, based on his early purchase agreements, he expects to earn 18.4 billion.
As delightful as this estimate may sound to shareholders, it is unreasonable to expect this income to be perpetually recurring in its entirety. The coronavirus vaccine market is rapidly growing more and more crowded as new candidates are approved by regulators, which means that in the years to come there will be more competition for market share.
Additionally, it is not known how long Moderna’s vaccine – or that of any other company – protects against the virus. Management expects the immunity to last at least a year, but it could be even longer. After that, people might need booster shots to supplement their immunity, which would be good for the business. But, if the vaccine-induced protection is extremely long-lasting, it may take much longer for the income to reproduce.
In short, Moderna needs new pipeline candidates to drive long-term growth, and it might not eclipse its 2021 revenue for years to come.
2. He never reported positive income
As impressive as Moderna’s meteoric rise has been, it hasn’t had a single profitable quarter so far. That includes the most recent quarter, when it reported a net loss of $ 272 million despite record revenue. While it is true that its colossal future income will probably make it possible to remedy its non-profitability fairly quickly, there could be a problem.
Understandably, the company’s expenses have swelled during its all-out efforts to bring out its coronavirus vaccine. Its cost to sell was only $ 8 million in the last quarter of 2020, but that’s likely to explode during its large-scale manufacturing push throughout this year. The same goes for its selling, general and administrative (SG&A) expenses, which in the fourth quarter more than tripled compared to 2019. Similarly, research and development (R&D) costs will remain much higher than before. due to the continued efforts of pipeline development. .
Thanks to the expected income from the vaccines, the spending itself is not as much of a concern for investors compared to market earnings expectations. It is entirely possible that Moderna will show strong profitability in the next quarter and still experience a contraction in its inventory if it does not hit the highest estimates. Because it does not have a history of profitability to rely on, the uncertainty is higher than it would otherwise be, making it riskier to invest at this time.
3. You may have to wait a few years for significant returns
It’s a tautology to say that the problem with buying explosive growth stocks is that they have already experienced explosive growth, but it’s true. Investors who approach Moderna’s stock today with the expectation that it will repeat its 2020 performance will be disappointed. The market has already factored in its victory in the coronavirus vaccine race, and in all likelihood, the expected premium of 2021 is being widely taken into account as well.
To move forward, there is some sources that will deliver reliable growth to investors: earnings above expectations and new insight into the performance, progress or launch of its pipeline programs. If 2021 goes exactly according to management’s estimates, the stock might not rise as much even though the company is making a lot of money. So investors should be prepared to hold out until at least the three-year horizon, when there is enough new information to push prices up.
Is Moderna still a buy?
Regardless of the three issues I raised here, I think Moderna become one of the most dominant biopharmaceutical companies in the world over the next decade. As the rapid development of a highly effective coronavirus vaccine shows, mRNA vaccine technology is a game-changer and will help the world tackle some of its most pressing health challenges.
Income from coronavirus vaccines can be replaced by other long-term sources, assuming people don’t need frequent boosters. Likewise, profitability is something Moderna can afford to postpone for a while before risking becoming a drag on the share price. Finally, the fact that new investors may have to wait for their purchase to pay off is only a reality when it comes to booming companies.
With the stock still a bit below its all-time high, now is probably a good time to invest. But, if stopping to take a breather before taking the plunge has dampened your urge to buy it now, don’t be afraid to wait a few months for a better price.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.