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MRNA Stock: Are Overvaluation Concerns Warranted?

Biotech firm Moderna (MRNA) has been one of the key players in combating COVID-19, becoming of the earliest pharmaceutical companies to launch a vaccine successfully. 

As such, Moderna’s valuation has soared to $169.4 billion at the time of writing. On a year-to-date basis alone, shares of MRNA stock have grown 275.7%. (See Moderna stock charts on TipRanks)

The company’s stock price recently dipped on various concerns of overvaluation. A high-profile analyst report spells out the rationale for the selling of late. This leads to me being generally bearish on Moderna right now.

However, MRNA stock rebounded toward its all-time highs this past week. Let’s discuss if this momentum can continue, and what might drive some volatility from here. 

MRNA Stock Could Be Way Overvalued

At least, according to analysts.

High vaccine sales have worked wonders both for the pharmaceutical company’s revenue, and its stock price. The stock surged to nearly $500 in August, prompting Bank of America analyst Geoff Meacham to deem Moderna’s stock “unjustifiable on a fundamental basis.” 

Meacham believed MRNA stock, at its highs, was approximately 75% overvalued. The prominent analyst kept his price target at $115 per share.

The BofA analyst said Moderna has to fulfill certain conditions to live up to what was a near-$200-billion valuation. First, it has to sell 1 billion to 1.5 billion COVID-19 vaccines each year until 2038. Second, the pharma company has to accomplish a 100% success rate for its entire pipeline. 

Those are aggressive assumptions. For Meacham, those assumptions just didn’t make sense.

Indeed, Moderna’s entire pipeline consists of four programs in Phase 2 trials, 10 programs in Phase 1, and eight preclinical programs. The pipeline comes with total peak sales of $30 billion. 

Meacham and other analysts have noted that Moderna is likely years away from seeing its pipeline materialize to the degree in which the market is pricing.

COVID-19 Booster Shot Will Boost MRNA Revenue

That’s not to say Moderna is without catalysts.

The company is on target to produce more COVID-19 vaccines, with the announcement of booster shots potentially coming soon for every American. The company believes, along with a majority of Americans, that these are likely necessary to prevent further catastrophe in the future.

However, the extent to which investors are pricing in booster shots remains to be seen.

Variants Could Propel MRNA Stock Further 

The discovery of newer COVID variants has been a constant cause of concern among health experts. A new strain of novel coronavirus, named Mu, has begun its spread. Although this strain represents only 0.1% of total world cases, it accounts for 39% of all the cases in Colombia. 

This Mu strain is reportedly much more immune to vaccines, and has already spread to over 40 nations, including the U.K. and the U.S. Another strain, named C.1.2, has been detected lately in South Africa. It comes with more mutations than any other variants. 

Interestingly, new virus variants could mean pharma companies have to develop improved vaccines. The demand for vaccines may be sustained for years to come, thereby boosting research and development of newer jabs.

Wall Street’s Take

According to TipRanks’ analysts rating consensus, MRNA stock is a Hold. Out of 14 ratings, there are four Buy, eight Hold and two Sell recommendations. 

The average MRNA price target is $328. Analyst stock price targets range between a low of $115 per share, to a high of $485 per share.

Bottom Line

A number of key catalysts remain on watch for Moderna investors. Indeed, the run MRNA stock has been on has been impressive.

However, recent concerns about the company’s valuation appear to be warranted. Investors considering MRNA stock at these elevated levels ought to be aware of the risks before jumping in.

Disclosure: At the time of publication, Chris MacDonald did not have a position in any of the securities mentioned in this article

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