It's a great time to be an investor. In the close to 17 months since the widely followed S&P 500 bottomed out during the coronavirus crash in March 2020, the index has doubled in value. Time and again, patience begets profits on Wall Street.
However, it's also common knowledge that not every stock is going to be a winner. According to Wall Street analysts and investment firms, there are three high-flying stocks that could lose anywhere from 53% to 84% of their value over the coming year, based on the consensus price target for each company.
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Moderna: Implied downside of 53%
First up is skyrocketing biotech stock Moderna (MRNA -1.22%), which has gained almost 1,900% since the beginning of 2020. Even after pulling back more than 20% from its intraday high last week, Moderna's share price would have to fall by another 53% just to hit the consensus price target of $184.92.
As you can probably guess, the reason Moderna has ascended to the heavens is the success of its emergency-use authorized (EUA) coronavirus disease 2019 (COVID-19) vaccine, mRNA-1273. In clinical trials, Moderna's vaccine candidate led to a vaccine efficacy (VE) of about 94%. With the exception of the Pfizer/BioNTech vaccine, which presented with a 95% VE, no other EUA vaccines have come close on the efficacy front.
The rise of the COVID-19 delta variant has been another major boon for Moderna. The transmissibility of delta has lifted vaccination rates in a number of developed countries, and it encouraged the U.S. Food and Drug Administration to authorize a booster shot for those people with compromised immune systems.
Ultimately, Moderna's skyrocketing share price appears to indicate that things could worsen before they get better on the COVID-19 front, and that booster shots will offer a beefier stream of revenue than once predicted.
However, the issue with Moderna's valuation is twofold. First, competition for COVID-19 vaccinations is increasing, not decreasing. Novavax is a good bet to receive EUA within the coming months, and Johnson & Johnson shouldn't have any trouble ramping up production of its single-dose vaccine. We're probably looking at Moderna's peak revenue year in 2021.
The other issue is mRNA-1273 is Moderna's only marketable drug. A $157 billion market cap based on a single therapy that may or may not have staying power sounds very risky.
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Dillard's: Implied downside of 55%
The next high-flying stock might come as a bit of a surprise... department store chain Dillard's (DDS -2.06%). Shares of Dillard's hit an all-time closing high of $196 on Friday, Aug. 13, pushing its market cap north of $4 billion. But according to analysts, which have a consensus price target of $87.33 on the company, this department store could be hitting the clearance rack with a 55% haircut over the next year.
If you're wondering why Dillard's stock is up 625% over the trailing year, its operating performance would be a good place to start. The company drastically cut costs in the wake of the pandemic, strongly pushed direct-to-consumer sales, and has tightly managed its inventory. Without these burdensome overhead costs, profits have absolutely skyrocketed over the past two quarters as pent-up demand encouraged consumers to get out of their homes and into retail stores.
Dillard's has done a good job of attempting to boost shareholder value, too. In the 26 weeks, ended July 31, the company repurchased about 1.4 million shares totaling $171 million. This may not sound like a lot, but it reduced the company's outstanding share count by more than 6%.
It's also worth pointing out that Dillard's has a relatively small tradable float, and it's been a fairly heavily short-sold stock. This combination made it the perfect target for a short squeeze.
Despite all these positives, it's important for investors to recognize that retail department stores are generally slow-growing and cyclical. Even though Dillard's year-over-year comparisons are lights-out impressive, its 26-week retail sales for 2021 are only 1% higher than its 26-week retail sales for the comparable period in 2019. Further, comparable-store sales are only 4% higher in 2021 compared to 2019. While gross margin is notably higher, this has more to do with cost-cutting than significant sales traction.
Though Dillard's might defy Wall Street for a bit longer than expected, history suggests it has no chance to keep up this pace. More than likely, Wall Street's price target will eventually become a reality.
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AMC Entertainment: Implied downside of 84%
Sporting the most potential downside, according to Wall Street's consensus price target, is movie theater stock AMC Entertainment (AMC -6.79%). Although it's one of the year's top-performing stocks, AMC would need to decline by 84% from its current share price to hit the consensus target of $5.25 a share.
AMC received a huge boost in January, when the company was able to save itself from bankruptcy by issuing common stock and debt. Short-sellers who'd been betting on additional downside in the company were caught off-guard by AMC's capital raise, which effected a vicious short squeeze.
Today, AMC's impassioned retail investors share the same goal -- i.e., to see another short squeeze take place. As of July 30, 85.85 million shares were held short, representing almost 17% of the float.
The problem for AMC and its retail investors is that fundamentals always matter, and AMC's operating performance and balance sheet are nothing short of a horror movie. While having increased capacity in its theaters drove sequential quarterly sales higher in the second quarter, it doesn't excuse the fact that AMC has burned through $576.5 million in cash over the past six months or that it's a long way from being profitable.
The balance sheet is a bigger concern. AMC ended June with $5.5 billion in corporate borrowing and had an additional $420 million in deferred rent that needs to be paid. With the company effectively maxing out its share issuances, AMC will be forced to rely on its $1.81 billion in cash and $212 million revolving credit facility to make good on its rent obligations and pay off its debt. With its 2026 and 2027 bonds going for 58% and 62% of par value, the clear implication from bondholders is there's concern AMC won't remain solvent.
The icing on the cake is we've witnessed theatrical exclusivity dwindle. For instance, AMC's agreement with AT&T's Warner Bros. offers only a 45-day exclusivity window, which is down from the traditional 75-day to 90-day period of exclusivity prior to the pandemic.
It may take longer than 12 months, but AMC does look to be headed back to its February low.
