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This Hot Growth Stock Is Still a Buy After Enormous Gains

By Adria Cimino – Jan 10, 2022 at 6:00AM

Key Points

  • Moderna’s coronavirus vaccine is likely to generate significant revenue well into the future.
  • But this biotech company doesn’t plan on relying on one product -- its pipeline is full of promising candidates.

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It's trading for a bargain in relation to earnings.

Vaccine giant Moderna (MRNA 4.16%) has gained a jaw-dropping 1,200% over the past two years. That's after the biotech company developed a coronavirus vaccine and brought it to market in about nine months. And after Moderna followed up by generating billions of dollars in revenue and profit from the vaccine.

So, there have been plenty of reasons to like this hot growth stock since the beginning of the coronavirus pandemic. In recent months, though, some investors have started to take a step back from Moderna. The big concern is vaccine revenue will eventually decline -- and this is Moderna's only commercialized product. But I'm not overly worried. I think this biotech stock still is a buy after its enormous gains, and here's why.

A masked and gloved healthcare worker vaccinates a masked patient in a medical office.

Image source: Getty Images.

1. The crisis isn't over

It's true that vaccination rates are high in many countries and regions. For example, 62% of Americans and 70% of European Union citizens are fully vaccinated. But the crisis continues. And a primary series doesn't equal lifelong protection. The rollout of boosters began last fall -- but even that isn't the final step. Moderna and rival vaccine maker Pfizer both have said boosters or vaccines will have to be renewed annually. This is as immunity wanes and as new variants emerge.

Right now, the omicron variant is responsible for yet another peak in coronavirus cases. Moderna has secured advance purchase agreements from various countries through 2024. And it's very possible that this latest wave will spur countries to exercise options for more doses. For instance, last week both South Korea and Switzerland signed on for additional booster doses to be delivered this year.

All of this means I don't expect Moderna's vaccine revenue to sink like a stone any time soon. Moderna predicted 2021 vaccine revenue of $15 billion to $18 billion. And the company's advance purchase agreements for this year are at about the same level as they were last year. Into the future, an annual vaccination program -- even for only the most at-risk individuals -- still may ensure Moderna a significant level of revenue.

2. Potential for post-pandemic leadership

Speaking of the future, Moderna is working on a potential product that could keep it in the forefront once the pandemic is over. The company aims to create a combined coronavirus-flu vaccine. The candidate is in preclinical development right now. The advantage of a combined vaccine is it reduces the number of shots needed for protection against two viruses. So, it may result in more people opting for vaccination.

Commercialization of a combined vaccine is still a few years down the road. In the meantime, though, Moderna is developing strain-specific booster candidates. Some target one variant -- omicron, for example. Others target more than one and may have the ability to protect against a range of emerging variants. These candidates are in various stages of development from preclinical to phase 2.

Today, the world is focused on which vaccines best address variants. And with the regular emergence of new variants, this probably will continue to be the focus. That's why Moderna's efforts to tackle new strains could result in more orders even once the pandemic is over -- and solidify its vaccine leadership.

3. A promising pipeline -- beyond coronavirus

Whether Moderna's vaccine revenue increases or not, it's important to remember that Moderna isn't only a coronavirus vaccine company. The biotech has 37 programs in the pipeline in a variety of areas. Moderna is working on an HIV vaccine, cancer vaccines, and an inhaled pulmonary therapeutic for cystic fibrosis just to name a few.

All of the company's programs involve its mRNA technology. The idea is messenger RNA instructs the body to produce proteins to prevent or fight off disease. Moderna's coronavirus vaccine demonstrated that the approach works. That's an encouraging point as Moderna moves on to develop additional mRNA candidates.

And for investors who may be worried about Moderna's dependence on one product for revenue here's some good news: The company recently launched a phase 3 pivotal trial of its cytomegalovirus (CMV) vaccine candidate. If all goes well, another commercialized product may be on the horizon. And Moderna predicts this potential product could be another blockbuster. Currently, a vaccine for CMV doesn't exist so Moderna may have the opportunity to seize the first-to-market advantage.

Moderna has soared over the past couple of years. But it has retreated from record highs over the past few months. And right now, it's trading for only about seven times forward earnings estimates. That's a steal considering Moderna's near-term and long-term prospects. So even though this stock has skyrocketed, it's still a great buy today.

Adria Cimino has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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