Coronavirus vaccine leader Moderna (MRNA 0.67%) hasn't given up its spot on center stage since the start of the pandemic. Investors piled into the shares as they bet on the company's vaccine work. They (and the company) won that bet.
The shares soared more than 400% last year. And they're climbing this year too. But there still is reason to buy shares of this innovative company. In fact, there are three solid reasons to add the stock to your portfolio right now. The picture isn't perfect, however. And that's why there also is one reason to sell.
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1. Attention: vaccine sales potential ahead
Moderna already has signed contracts worth $19.2 billion in product sales this year. Along with rival Pfizer, it's a leader in the U.S. coronavirus vaccine market. Each company is supplying the U.S. with 300 million doses. But product sales probably haven't peaked this year. CEO Stephane Bancel recently predicted need would be greater next year. A variety of elements will contribute to that.
First, Moderna aims to have a booster ready by fall. Initially, that means boosters for everyone who already received the two-dose vaccine. Beyond that point, it means countries likely will order the two-dose vaccine and the booster. Moderna also will benefit if regulatory agencies authorize its vaccine in new groups such as teens and kids. And finally, Moderna is filing for full regulatory approval of its vaccine. An approval should further boost confidence in the vaccine. If more people get vaccinated, countries may increase future orders.
All of this signals higher product revenue in 2022.
2. Another product on the horizon
When we talk about Moderna, we immediately think of the coronavirus vaccine. But the biotech has a full pipeline including more than 20 other candidates. These potential products span a variety of indications. Moderna is developing an HIV vaccine, personalized cancer vaccines, and treatment for a heart condition just to name a few.
But the one that catches my eye right now is its vaccine candidate for cytomegalovirus (CMV). That's because it's farthest along in the pipeline -- so it could represent a revenue source in the not-too-distant future. Moderna expects to begin a pivotal phase 3 trial this year. CMV is a common virus that's most dangerous for people who are pregnant or have a weakened immune system. There isn't yet a vaccine for CMV -- so if Moderna's candidate makes it through to commercialization, this could be a game-changing product.
3. The shares are a bargain
Moderna shares have increased more than 100% this year. Moderna is trading at about eight times forward earnings estimates right now. That's higher than the level of about five times forward earnings back in April.
MRNA PE Ratio (Forward) data by YCharts
But I still think the stock is a bargain considering future vaccine sales and the potential of other candidates farther down the road. Moderna posted $1.2 billion in profit in the first quarter. That was its first ever profit. As mentioned above, the coronavirus vaccine represents blockbuster revenue levels this year -- and that should continue beyond this year.
So, the shares actually look reasonably priced considering all of this revenue potential ahead -- and the fact that Moderna is already profitable after one quarter of vaccine sales.
Rivals are waiting in the wings
Now, what's the reason to sell Moderna shares? Well, Moderna and Pfizer dominate the coronavirus vaccine market at the moment. Their first-to-market advantage and proactive manner of tackling boosters and shots for kids probably will keep them in the leadership spot for a while. But as latecomers enter the market, early leaders may lose some market share. Especially if latecomers enter with next-generation vaccines that either handle variants better or are easier to use or store.
I wouldn't expect one company to take significant market share away from Moderna. But a handful of companies entering the market in the future could result in smaller orders for all players -- including Moderna. So, Moderna's coronavirus vaccine sales growth may not be forever. And that would weigh on share price performance.
But even if that scenario eventually plays out and revenue doesn't grow much, I still expect it to stabilize at a high level. So, in my opinion, the reasons to buy this biotech stock outweigh this reason to sell.
