Moderna Stock Rose 50% in July – Time to Buy MRNA Stock in August?

The price of Moderna shares exploded during July with the stock gaining as much as 50% after S&P Global announced that the company will be added to its popular S&P 500 index.

Meanwhile, since its addition to the index on 21 July, Moderna shares have advanced 13.5% while the stock is currently trading 0.4% higher at $348 per share.

With a market capitalization of $140 billion, is Moderna still a good stock buy? Or has the market gotten too ahead of itself for a company whose only revenues come from a product that may see diminished demand once a significant portion of the world’s population gets vaccinated?

In the following article, I’ll take a look at Moderna’s fundamentals and growth prospects to see if this valuation is somehow justified or if prospective investors should wait until a correction takes place before taking a long position on the biotech firm.

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Moderna Stock – Technical Analysis

The chart above shows how Moderna’s price action broke above an upward price channel that started back in December 2020 with readings of the Relative Strength Index (RSI) already reaching levels seen back then while the MACD has been stretched to its highest level since the company went public.

Moreover, the stock is currently trading 17% above its 20-day moving average, 43% above its 50-day moving average, and 145% above its 200-day moving average. This kind of overextension often leads to swift correction and this is not the first time that Moderna trades as such.

In December last year, the stock topped at $170 per share when it was trading 174% above its 200-day moving average and retreated to $100 a month after. Then, in early February this year, Moderna traded at $190 per share or 120% above its 200-day moving average and retreated to $116 only a month after.

Even though it is fairly hard to time when Moderna shares will drop from their currently stretched levels, history suggests that the stock should experience a sharp pullback at some point in the future.

Moderna Stock – Fundamental Analysis

Before relying too heavily on the technical analysis outlined above, a closer look at Moderna’s fundamentals would be required to see if the company may also be overvalued based on its historical and forecasted financial performance.

In this regard, Moderna has been able to close last year with $803 million in revenue and total losses of $747 million or $1.95 per share while analysts are forecasting non-GAAP EPS of $25.67 for 2021 on sales of $19.12 billion on the back of huge vaccine volumes.

Moving forward, for 2022 and 2023, revenues are forecasted to decelerate to $15.8 billion and $8.2 billion respectively while non-GAAP EPS should fall to $18.93 and $6.5 per share.

Based on those estimates and considering its current market capitalization of $140 billion, Moderna appears to be trading at around 7 times its forecasted sales for this year but at 17 times its 2023 sales.

It is important to note that even though sales forecast may show a declining trend, the company’s capitalization reflects the value of its intellectual property, which includes its Messenger RNA (mRNA) technology for developing drugs – which has proven to be effective already in a big way.

Meanwhile, the company’s pipeline of drugs being developed includes a wide range of treatments for multiple diseases including a cytomegalovirus (CMV) vaccine, a personalized cancer vaccine (PCV), and a treatment for myocardial ischemia. In total, aside from the COVID-19 vaccine, Moderna has 4 drugs in Phase 2 clinical trials already and receiving approval for moving those products to Phase 3 could result in more upside for the stock as more revenue streams would open up for the company.

On the solvency and liquidity front, the company is well funded as it had $7.7 billion in cash and equivalents by the end of the first quarter of 2021 and almost no long-term debt.

Without a doubt, Moderna has proven that its mRNA technology is effective and its intellectual property possibly accounts for a fair share of its valuation. However, whether that IP is fairly priced is another matter and that would probably depend on the firm’s ability to keep pushing more products up the pipeline.

For now, its COVID-19 vaccine is the only revenue-generating product for Moderna and, until that changes, its current valuation seems fairly stretched and this opens up the possibility for a correction based on the technical factors discussed earlier.

Meanwhile, the company is scheduled to report its earnings this Thursday and that event in particular could be the catalyst for a correction if results fail to deliver the kind of surprise that could further boost the stock price to even more stretched levels.

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