What a fantastic six months it’s been for Moderna. Shares of the company have skyrocketed 44.2%, hitting $63.36. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy Moderna, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Moderna Will Underperform?
We’re glad investors have benefited from the price increase, but we don’t have much confidence in Moderna. Here are three reasons why MRNA doesn’t excite us, plus one stock we’d rather own.
1. Revenue Spiraling Downwards
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Moderna’s demand was weak over the last five years as its sales fell at a 20.5% annual rate. This was below our standards and signals it’s a low quality business.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for Moderna, its EPS declined by 24.5% annually over the last five years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Moderna’s margin dropped by 95.9 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its already low cash conversion. If the longer-term trend returns, it could signal it’s in the middle of a big investment cycle. Moderna’s free cash flow margin for the trailing 12 months was negative 55.8%.
Final Judgment
We see the value of companies making people healthier, but in the case of Moderna, we’re out. Following the recent surge, the stock trades at $63.36 per share (or a forward price-to-sales ratio of 12.3×). The market typically values companies like Moderna based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here – there are more exciting stocks to buy. We’d recommend looking at one of our all-time favorite software stocks.