Does Moderna Stock’s Rally Hold Up Under the Microscope?

Stocks to buy

When it comes to the stock price of Moderna (NASDAQ:MRNA) the question on the minds of investors is: How high can it go? The per share price of the Cambridge, Massachusetts, biotechnology company has been galloping lately, rising 91% since mid-April and an astounding 222% so far this year. MRNA stock jumped 20% on May 18 and closed trading at $80 a share on news that the company’s initial clinical trial showed promising results.

MRNA Stock: Can Moderna's Rally Hold Up Under the Microscope?

Source: Shutterstock

It’s been a meteoric rise for the stock when you consider that, as recently as March 13, MRNA traded at $21.30 — below its 2018 initial public offering (IPO) price of $23.

The recent momentum has been driven almost entirely on hopes that Moderna will be the first company to develop a vaccine against the novel coronavirus that has brought the entire world to a virtual standstill.

Indeed, things look promising for Moderna, which received $483 million in April from the U.S. government for further development of its Covid-19 vaccine (called mRNA-1273), which is already in a phase two clinical trial. However, the stock’s rapid ascent begs the question: Is the rally sustainable?

Skeptics Abound in MRNA Stock

Many analysts are warning that Moderna’s stock price has reached unsustainable levels and they are urging investors to book profits now before the shares retreat. Many observers are also questioning Moderna’s ability to actually deliver a proven vaccine to treat Covid-19, and also question the timing for delivering a cure. It is important to point out that, to date, Moderna has never brought a single vaccine to market, and that it typically takes 18 to 24 months to fast track a vaccine for testing in humans. Most conventional vaccines take 10 years or longer to develop, test and approve for marketing and use in people.

Also noteworthy is the fact that Moderna has been the subject of hype and speculation before. The company has been publicly traded for only 18 months, and when the company launched its IPO in December 2018, it was the biggest IPO of a clinical-stage biotechnology company in U.S. history. Before going public, Moderna attracted over $2.6 billion in private equity investments, had $1.2 billion in cash, and boasted partnerships with pharmaceutical giants such as AstraZeneca (NYSE:AZN) and Merck (NYSE:MRK). Nevertheless, without a robust pipeline of products, investors quickly cooled on Moderna’s stock, sending it down below the IPO price to a 52-week low of $11.54.

Moderna is not the only company racing to develop a cure for Covid-19. A total of 23 companies ranging from Johnson & Johnson (NYSE:JNJ) and Pfizer (NYSE:PFE) to Gilead Sciences (NASDAQ:GILD) and GlaxoSmithKline (NYSE:GSK) are in various stages of developing a drug to either test, treat or cure Covid-19. The big questions facing Moderna are how fast can the company get its Covid-19 vaccine to market, and will it work?

Moderna’s Cutting-Edge Approach

While Moderna’s share price may be rising on hopes and speculation right now, the company does have a unique and proprietary approach to vaccine development that could underpin the stock’s performance and drive future growth for years to come.

The company develops drugs based on messenger RNA, or mRNA, which Moderna executives call “the software of life.” Traditional vaccines introduce viral proteins into the body in the form of weakened or deactivated virus particles, prompting an immune response that’s sufficient to kill off live viruses encountered in the environment. Moderna’s mRNA vaccines incite the body’s own cells to manufacture a protein found on a virus, which sets off an immune response.

One advantage of Moderna’s approach to vaccines is that the company can develop and manufacture them much faster than conventional drug makers. And many analysts who have followed Moderna closely claim that the company’s approach represents both the new frontier and future of vaccine development.

Some analysts say that the Covid-19 pandemic has served to highlight Moderna’s strengths and that the company’s ability to respond quickly and scale up in a hurry showcases a competitive advantage over competing biotechnology and pharmaceutical companies.

Strong Buy Rating

The consensus view of analysts is a “strong buy” rating on Moderna’s stock.

Among 11 analysts, nine have buy ratings on Moderna while two have hold ratings. There are currently no sell ratings on the stock. The high forecast is for the share price to reach $83.00 by year’s end. Moderna is forecast by some analysts to be one of the top-performing stocks of 2020. That said, it is worth noting that the low forecast on the stock currently is $32 per share, and the average price target is $62, which represents a 6.99% decrease from the latest price per share of $66.69.

In the end, investors will have to decide if Moderna’s current share price is sustainable over the near term or if the stock is likely to pull back in coming weeks as the upside potential gets fully baked in.

Given the uncertainty surrounding a potential vaccine and its timing, investors itching to buy into Moderna may want to take a wait-and-see approach. The share price may be more attractive in coming months.

For investors who currently hold Moderna stock in their portfolio, the best approach might be to hold long term but set a stop loss to protect profits should the stock come back down to earth.

As of this writing, Joel Baglole held shares of Moderna Inc.

Articles You May Like

Introducing StockTracker Master Class Volume 1