Moderna Stock Down 13% in October – Time to Buy MRNA Stock?

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The price of Moderna stock has declined nearly 13% so far in October following news about the so-called “COVID pill” from Merck. The approval of what would be the first available oral treatment for the virus that has caused a global pandemic may decelerate the firm’s vaccine sales as those who are reluctant to take a shot may now opt for relying on molnupiravir to be cured.

Shares of the American biotech firm declined more than 11% on the day that Merck (MRK) reported the positive results of the drug although they have slightly recovered from their October low of $293.6 per share.

Meanwhile, shares are climbing 2.5% in pre-market stock trading action this morning on top of another 3.3% advance seen yesterday after a report from the New York Times indicated that the US Food and Drug Administration (FDA) is planning to allow Americans to use a different vaccine when taking a booster shot.

Can these rumors lift the price of MRNA stock once again or is this biotech overnight success poised to experience further declines? In the following article, I’ll assess the price action and fundamentals of the company to outline plausible scenarios for the future.

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Moderna Stock – Technical Analysis

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Moderna (MRNA) price chart – 1-day candles with multiple indicators – Source: TradingView

In a previous commentary for Moderna we highlighted the formation of a pennant pattern following the sharp uptrend that the stock experienced in July-August after the company stated that it was working on a single-shot COVID and flu vaccine.

This pennant pattern is typically considered a continuation pattern as long as the price breaks above the formation. However, the opposite occurred as rumors about the success of Merck’s COVID pill started to push the price lower until it fully broke the pattern.

It is important to note that the stock was heavily overextended back then as the price was at some point trading as much as 190% above its 200-day simple moving average. Such a distance from its long-term average is typically considered an anomaly and increases the risk of a sharp downturn such as the one the stock experienced a few weeks ago.

Even though the distance between the 200-day SMA and the price has been trimmed to 40%, this is still a fairly stretched gap and it opens up the possibility of further declines if a full-blown return to the mean unravels.

For now, the short-term outlook is bullish based on this latest development regarding the FDA’s potential blessing for matching and mixing COVID shots. However, this could be a short-lived technical bounce considering that the stock is coming from neck-deep negative momentum readings.

Moving forward, unless the price action jumps above MRNA’s short-term moving averages the outlook continues to be bearish and the downside risk for the stock is still quite high considering the distance between the price and the 200-day SMA.

Moderna Stock – Fundamental Analysis

The fact that the FDA may allow Americans to mix and match vaccines is not necessarily that impactful for Moderna. The agency will still recommend that the public takes the same vaccine unless they are unable to do so.

That said, the latest decline in the stock has pushed Moderna’s NTM P/E multiple to as low as 7.6x. We have commented that such a low trading multiple is resulting from analysts’ gloomy outlook for the company for once the pandemic is over.

This view is reinforced by the steady decline that analysts expect to see in the firm’s sales by 2023. According to estimates compiled by Koyfin, Moderna’s top-line results are expected to be cut in half by the end of that year.

However, it is important to note that Moderna has validated the power of its mRNA technology to develop vaccines and treatments at a fast pace and the profit-generation capacity of further treatments don’t seem to be priced into the stock.

For 2023, earnings per share for the company are expected to land at $12 resulting in a P/E ratio of 28 – still fairly conservative for a business that has such a promising future ahead.

All things considered, the outlook for Moderna is positive and, even though downside risks are high at this point, investors may want to keep an eye on how the price action behaves in the future as a decline below the $300 level may be a great opportunity to open a long position on a company that is revolutionizing the way vaccines and other treatments are developed.

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About Alejandro Arrieche PRO INVESTOR

Alejandro is a freelance financial analyst with 7 years of experience in the industry. He writes technical content about economics, finance, investments, and real estate and have also assisted financial businesses in building their digital marketing strategy. His favorite topics are value investing, macro analysis, and technical analysis. Other publications Alejandro has written for include The Modest Wallet, and Capital.com.