Moderna (MRNA 3.06%) took the world by storm in 2020. The company quickly became a leader in the race to develop COVID-19 vaccines.

Since the middle of last year, though, Moderna has been through storms of its own. With uncertainty about the future demand for COVID-19 vaccines, the company has lost close to two-thirds of its market cap.

Some look at commonly used valuation metrics and think that Moderna's share price is now a bargain. Not everyone agrees with that view, however. Here's why Moderna could still be more than 50% overvalued.

A complicated analysis

Alpha Spread operates a very useful online stock-valuation platform, which enables investors to analyze the valuations of stocks in multiple ways, including the discounted cash flow (DCF) model. Alpha Spread even features pre-built DCF models for many stocks, including Moderna.

If you're not familiar with DCF models, it's a relatively complicated analysis used to determine the valuation of stocks. The idea is to project cash flow for a company well into the future, then use a discount rate to calculate the present value of all of the cash flow.

That's the hard part. After determining the present value of future cash flow, the company's cash, cash equivalents, and investments are added. Then, the company's debt is subtracted. The resulting total is divided by the number of outstanding shares to calculate the value per share.

Alpha Spread's base case for Moderna determined a present value of future cash flow of only $11.1 billion. After performing the other calculations involving cash position, debt, and number of shares, the final DCF valuation of the vaccine stock came to $71.66 per share. That's 56% below Moderna's current share price.

Challenging the assumptions

There are quite a few assumptions that go into a DCF model. If those assumptions are too optimistic or pessimistic, the calculated valuation could be way off. I suspect that there are two key assumptions used in Alpha Spread's base-case DCF model for Moderna that some investors would challenge. 

First, this model assumes that Moderna's revenue will decline from $22.3 billion in year one to a little over $8 billion in year three and afterward. Second, the model uses a terminal growth rate (the expected rate of growth going forward forever) of 0%.

Moderna's own middle-of-the-road forecast is that there will be an $18 billion global market for COVID-19 boosters in the future. An estimate of $8 billion or so of annual revenue from COVID-19 vaccines for Moderna seems defensible.

However, there's more to Moderna than just COVID-19 vaccines. Chief Commercial Officer Arpa Gray said in the company's Q3 conference call that Moderna is already gearing up for commercial launches of its flu and respiratory syncytial virus (RSV) vaccines. Both vaccine programs are in late-stage testing with data potentially on the way in early 2023. Flu and RSV represent multibillion-dollar market opportunities for Moderna.

Some might argue about using a terminal growth rate of 0% for Moderna, as well. After all, the company has a deep pipeline that could yield many more powerful vaccines and therapies in the future. Moderna also has a lot of cash that it could use to build out its pipeline even more.

An art, not a science

Is Moderna stock really overvalued by more than 50%? Maybe, maybe not.

Determining valuations for stocks is much more of an art than a science. Projecting future cash flow for biotech stocks is especially challenging. It's impossible to know in advance which pipeline programs will be wildly successful and which will be big flops.

Obviously, most investors don't think that Moderna is way overvalued right now. Otherwise, the stock would trade lower than it does. Beauty and art are in the eye of the beholder, and so is a stock's valuation.