Robinhood is a financial-services company that offers commission-free investing, and it has attracted millennial investors. It's a good place to check out what's popular among young retail investors, though it's important to note that stocks that are hot among Robinhood investors are often overpriced because of the hype surrounding them.
However, two stocks on the Robinhood Top 100 most popular stocks list, Moderna (NASDAQ:MRNA) and Virgin Galactic (NYSE:SPCE), are struggling of late and coming down in price. Let's take a closer look at why they're dropping and whether that's made either one of these two stocks a buy right now.
It's been a great year for Moderna, as the biotech company's been in the news for its development of a vaccine for COVID-19. On July 27, it announced the beginning of its phase 3 study for mRNA-1273, its vaccine candidate. The study is significant because it could involve as many as 30,000 people. The results will be much more meaningful than those from previous studies, including a phase 1 study that produced positive results in July but with data available for 45 people. Nonetheless, it was enough to help the stock rally.
But in recent weeks, Moderna's been struggling. Its share price is down by about 10% since Aug. 5, when the company released its second-quarter results. For the period ending June 30, total revenue of $66.4 million grew by 407.2% from the previous year and its net loss of $116.7 million was also 13.5% better than the $134.9 million loss it incurred a year ago. Although it wasn't a bad quarter, it was perhaps a reminder to investors of just how far the company has to go to become profitable.
Moderna is also expensively valued, and with losses in each of its past four quarterly results, its price-to-earnings multiple is negative. It also trades at 9 times its book value and more than 200 times its sales over the trailing 12 months.
Unfortunately, even with the drop in price, Moderna's still a risky buy. There's not much to look at here from a value investor's point of view; the stock is still incredibly expensive. And growth investors are still banking on Moderna's success in developing a COVID-19 vaccine. From a risk standpoint, nothing's changed there -- and that's why, despite the drop in price, Moderna is not much more of an appealing buy than it was a month ago.
Another stock that's been popular with Robinhood investors this year is Virgin Galactic. The spaceflight company has captured the excitement of many people who want to travel among the stars. However, passengers won't be able to travel to space until at least 2021 as the company takes time to ensure that the flights are safe and in accordance with the guidelines from health officials, including the U.S. Centers for Disease Control and Prevention.
Virgin's stock only began trading in October, and it's risen about 75% in value since then. But the problem with the business is that it's still very much a work in progress. It's still conducting test flights, and it's likely to be awhile before it starts delivering actual flights and becomes profitable. On Aug. 3, Virgin released its second-quarter results for the period ending June 30. And with no sales reported for the period, there was no chance that it would cover its operating expenses, which totaled $63.2 million. Its total loss of $62.5 million rose 41.9% from the $44.1 million loss Virgin incurred during the same period last year. The poor quarter looks to be a key reason Virgin's stock's been struggling of late.
In just the past month, the stock is down close to 30%, and like Moderna, it's still far too expensive to buy right now. Trading at more than 1,000 times its sales and 10 times its book value, Virgin's an even more expensive investment than Moderna. And with the economy in the midst of a recession, there may not be much demand for space travel for the foreseeable future.
Neither stock is a buy
Although both of these stocks are falling, they're still doing far better than the S&P 500 this year:
This correction in share price does little to make either of these popular Robinhood stocks better buys right now, especially as the markets are overheating and with the S&P 500 hitting record highs in August. Now's a time to exercise caution in the markets; investing in either of these two stocks would do the opposite.
Editor's note: A previous version of this story said the phase 1 study that produced results in July contained data on eight people. It actually contained data on 45 people. The story has been updated.