Moderna's (MRNA 0.89%) stock is in poor shape. So far this year, it's down more than 44% and its valuation multiples are slumping. On the bright side, people can buy the shares far more cheaply right now than they could at any point in the last few years.
Unfortunately, when investors take a closer look at why Moderna's stock is so inexpensive, they probably won't want to make that purchase. There are at least three reasons that its shares are down, and they're all quite intractable.
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1. Vaccine-stock mania is over
The most obvious reason Moderna's stock is so cheap is that the market (and public) have moved beyond buying shares of heavily hyped vaccine stocks. Biotechs like Novavax and BioNTech saw their values absolutely explode while they were actively working on developing some of the world's first coronavirus shots, but since roughly mid-2021 investors are cooling to prior winners. Consider this chart:
Many investors are tired of hearing about the pandemic. For Moderna shareholders hoping for a rebound, that trend is bad news. It's hard to imagine any sequence of events or new products that would drive the company's shares to valuations as high as in June of 2021, when it traded at a trailing price-to-earnings (P/E) ratio of more than 191.
For reference, right now, its P/E is a hair over 4, which is significantly lower than the market's average P/E of about 20. The market is quite pessimistic about the company's ability to recreate the financial successes of the past two years.
2. Jab revenue is likely to start falling soon
A collapsing hype cycle isn't always enough to drive a high-flying company's valuation down if it's still growing and increasing its business -- unless it's known that those returns will decrease in the near future. And that's exactly Moderna's situation.
The company's trailing 12-month revenue is $22.6 billion, and management predicts that it'll bring in around $21 billion in 2022. But here's the problem: The average revenue estimate of 18 Wall Street analysts calls for total revenue of only around $10.3 billion in 2023. That's a massive decline, and it's all being caused by a global coronavirus-vaccine glut.
Though the company is pursuing updated booster shots -- which should be more effective against the omicron variant as well as the original SARS-CoV-2 virus -- demand for booster doses from the public (and thus government purchasers as well) will be much lower than the demand it enjoyed for the primary vaccination series doses. Unfortunately, it's also possible that Moderna will face a resurgent wave of skepticism about the safety and efficacy of its jabs, which won't help with uptake.
3. Nothing else in the pipeline is ready for prime time
Falling future revenue from coronavirus vaccines wouldn't be so troublesome if Moderna had pipeline programs approaching maturity and potentially bearing revenue. Once again, the company's investors are out of luck.
Moderna has a small handful of programs in phase 3 clinical trials, including a respiratory syncytial virus (RSV) vaccine and a cytomegalovirus (CMV) vaccine. But most members of the public are wholly unfamiliar with both of those viruses and the diseases they cause, so there's no hope of restarting the hype train. Plus, according to a report by Fortune Business Insights, the global market for RSV medicines will only be worth around $4 billion by 2027.
Even if Moderna captured 100% of the market in 2027, it would be nowhere near enough to replace the quickly tapering income it'll be losing in 2023. Commercializing a CMV jab is similarly unlikely to make much of a difference.
In short, the biotech's revenue isn't going to see salvation for quite some time, and it may take many years to ever reach its recent heights. Even though Moderna's stock is extraordinarily cheap at the moment, it's probably a good idea for investors to steer clear -- unless they're willing to hold strong for as long as it takes.
