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Should You Buy Moderna After Its 718% Rise In 3+ Years?

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

If you do both well, it helps you earn higher than average investment returns and build wealth.

Because the fewer investment losses you have the more capital you keep. And the more capital you keep the faster you compound your money.

To help you figure this out, today I answer… Should You Buy Moderna After Its 718% Rise In 3+ Years?

Moderna (MRNA) is a creator of medicines and vaccines.  And it recently released one of the first Covid-19 vaccines worldwide.

Its based in Cambridge Massachusetts.  It has a $49.1 billion market cap. And its massively unprofitable.

Moderna’s Never Earned A Profit

Moderna IPO’d in December 2018 and its financial info goes back to 2016… And in that time it earned an average operating income margin of negative 360% per year.  

I look for anything above 10% consistently. 

Another way to show this is with its free cash flow to sales ratio (FCF/Sales). Over the last decade its negative 209.6% per year on average.  

I call this the “Cash Machine” metric.

I look for anything above 5% on a consistent basis for the same reasons as I look for high operating profit margins above.  If a company surpasses both thresholds it makes it a great operating business.

However, Moderna’s operations have never been profitable on an operating profit or free cash flow basis.

Why?

Because it plows all – and every year so far more than all – of its profits and free cash flow back into growth.

This is good for fast growth companies… But at some point, it needs to earn a profit. 

Because up to this point the only way its stayed alive and continued growing is by issuing a ton of stock.

Think of this like inflation and how this constantly lowers the worth of the US dollar over time.  In the short term and specific cases, dilution is fine… And it can be even good.

But over the long term its generally horrible and lowers the value of Moderna shares drastically.

Another major problem for Moderna… Its enormous valuation.

Moderna IS NOT Cheap

With the markets at or near all-time highs you’d expect a fast growth stock like Moderna to be selling at an enormous valuation.

Unfortunately, it is.

As of this writing its P/E is unreadable due to unprofitability.

Its P/CF is 68.9.

Its forward P/E is 48.5.

And its enterprise value to operating income – EV/EBIT is unreadable due to its operating profits being negative.

On all three metrics at the top, I look to buy investments below 20 to consider them undervalued.

And on EV/EBIT I look to buy stocks below 8.

Another way to show this is with its gigantic share price growth since its IPO.

For most of 2018, 2019, and the beginning of 2020 Moderna shares stayed relatively flat in the $20 range.

But when Covid swept the world in March 2020 its shares exploded as you see in the chart above.  As of this writing its shares are now up 718% in 3 years… With most of that gain coming in the last 12 months alone.

Why?

Because people speculated early that Moderna could create a vaccine that may at least partially solve the pandemic.

And it did.

Back on December 18th, 2020 Moderna became one of the first companies in the world to release a Covid-19 vaccine.

This is great of course for all of us, Moderna, and its shareholders.

What isn’t great?  While Moderna’s vaccine and the other ones available will help… This or any of the other current vaccines won’t solve the pandemic and rid us of Covid.

Don’t believe that?

Here’s what Moderna CEO Stephane Bancel said recently about this that I reported on in my article on Monday – “The World Will Have To Live With Covid Forever.”

Public health officials and infectious disease experts have said there is a high likelihood that Covid-19 will become an endemic disease, meaning it will become present in communities at all times, though likely at lower levels than it is now.

Moderna CEO Stephane Bancel appeared to agree Wednesday that Covid-19 will become endemic, saying “SARS-CoV-2 is not going away.”

“We are going to live with this virus, we think, forever,”

Exchange above is from an article from CNBC.  I continued Monday…

I warned about this last week…

The vaccines will help some… But how long will that take?

Cities and states are far behind the 10 million estimated to have been vaccinated due to the mammoth logistical problems of producing, manufacturing, distributing, and giving the vaccines.

An estimated 50% of people don’t want the vaccine.

And even if they do get the vaccine, the new “highly infectious strain” of the virus making its way around Europe and the US – according to some experts the vaccine may not protect against this new and more deadly strain.

And more news broke this week that the newly mutated strain out of South Africa and Brazil called E484K that has already spread to 12 other countries could be more resistant to current vaccines.

Penny Moore, associate professor at the National Institute for Communicable Diseases in South Africa, called the mutation “alarming.”

“We fear this mutation might have an impact, and what we don’t know is the extent of the impact,” she said.

E484K is called an “escape mutant” because it’s been shown it might be able to escape some of the antibodies produced by the vaccine.

“I’m worried,” said Alex Sigal, a virologist at the Africa Health Research Institute.

The above is via CNN.

Yes, Moderna and all of us will benefit from the vaccine to some degree.

But it won’t rid us of Covid and get us back to normal.

And right now, Moderna is valued at such an elevated level that it would have to cure Covid completely to be worth its valuation.

This means owning its stock gives you no margin of safety in investing terminology.

When you invest in stocks that have a margin of safety it makes the investment safer.  And it also means you should expect to earn higher returns owning it in the coming years.

The inverse of this is also true…

When you invest in a stock without a margin of safety it makes the investment riskier.  And it also means you should expect to earn less owning it going forward.

With Moderna being overvalued, this makes it enormously risky.

Combine this with it never being profitable and the huge speculation in its stock driving it up 718% in 3 years and you should avoid buying Moderna.

Conclusion

If you’re looking for a solid, safe, dividend paying, stable, and enormously profitable investment to buy – avoid Moderna and consider investing in one of the stocks I recommend below.

Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above

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