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If you’ve invested in a COVID-19 vaccine manufacturer Modern (NASDAQ: mRNA) last year you are probably sitting on a fantastic return as the stock has risen over 500% in 12 months (the S&P 500 only increased by 31%. But the danger of continuing to own the stock or buy it today is that it could collapse in the months to come, perhaps even before the end of 2021.
With an onerous valuation significantly above analysts’ pricing targets and a business reliant on COVID-19 today, it may only be a matter of time before a correction takes place. Here’s a closer look at why I wouldn’t be surprised if the stock were to go down.
Image source: Getty Images.
Moderna may soon face more competition in the United States
Currently, Moderna is only one of three companies (the others being drug manufacturers Johnson & johnson and Pfizer) with COVID-19 vaccines available for use in the U.S. market. But there may soon be another, from the vaccine maker Novavax. The company plans to apply for emergency use authorization (EUA) from the United States Food and Drug Administration for its vaccine before the end of the year. If that happens, expect downgrades from analysts as this could be a sign Moderna’s market share is going to decline in the US; Novavax might even become the best stock to buy.
Plus, with vaccination rates on the rise in the United States – over 50% of eligible people are fully vaccinated – the pool is already shrinking. While there may be a market for the booster shots next year, scientists aren’t sure if it’s needed. And even if people took the injections, it would only be one more dose than the two injections needed for a person to be fully vaccinated (with the Pfizer and Moderna versions).
As a result, attention will inevitably shift to other countries where there are more vaccines to choose from. On top of that, Moderna’s vaccine may be less competitive due to its high price tag.
Even more challenges outside the United States
Moderna recently increased its price per dose in Europe from $ 22.60 per dose to $ 25.50. It’s steep compared to AstraZeneca, which offers its vaccine for a few dollars per dose. Vaccines Sanofi and GlaxoSmithKline are also cheaper than Moderna, at less than $ 10 per dose. With a large premium over its rivals, Moderna’s vaccine could prove more difficult to sell for countries that have more options available.
In June, the US government ordered 500 million doses of the Moderna vaccine, while in Europe, authorities had purchased 460 million doses. While not a huge disparity, Europe’s population of around 750 million people is more than double the size of the United States.
In other parts of the world, the price will be even lower. Covax, which is a global initiative to help all countries access COVID-19 vaccines, has obtained up to 500 million doses of the Moderna vaccine. But only 34 million of those vaccines will be delivered this year. Covax has an option on the remaining 466 million next year.
Although a specific price per dose was not noted in the agreement, Moderna confirmed that these will be sold at its lowest price point, which is “considerably lower than the US government price” (the United States pays around $ 15 per dose).
Downgrades and drop are inevitable for this booming stock
Moderna’s stock is currently trading at a price-to-earnings ratio of over 50. That’s well over the 19 times the earnings investors pay for Pfizer and the 27 times the earnings that the average holding in the United States. SPDR Fund for Selected Sector for Health Care is enticing. The stock is already outrageously expensive, and that even accounts for a recent upgrade from Morgan stanley, which raised its price target for Moderna from $ 190 to $ 337.
Long-term investors can point the finger at the company’s pipeline. But currently, the most promising product it has is a cytomegalovirus vaccine which is entering Phase 3 trials. Analysts expecting annual sales to spike no more than $ 5 billion are unlikely. the post-COVID gap is closed. For the three-month period ending June 30, Moderna reported revenue of $ 4.4 billion, thanks to its sales of COVID-19 vaccines.
Between the FDA’s possible EUA for Novavax’s vaccine candidate and analysts potentially readjusting their pricing targets for Moderna to reflect a greater need to focus on markets outside of the United States, there could be a some decline ahead for the health care stock. If you’ve made a good profit on Moderna so far, it might be time to consider a withdrawal. Its shares may have already peaked when they nearly crossed $ 500 earlier this year.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.
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