Cathie Wood's ARK Innovation ETF buys shares of businesses that have the potential to change our world. Changing the world usually takes time, which is why Wood's fund isn't afraid of buying and holding shares of innovative companies even when their stock prices are way down.
With its shares down 27% this year so far, Moderna's (MRNA 13.67%) time in the limelight appears to be fading, at least for the moment. But in the long term, people who invest in it today have a good shot at seeing a significant gain on their purchase. Here's why.
Keep your eye on the long term
Wood understands that Moderna will continue to be one of the most important biotechs in the industry's history.
In 2020, it developed and commercialized its first product, a vaccine against the coronavirus, which it then marketed worldwide. In 2022 alone, sales of its jab raked in $18.8 billion in sales, which resulted in more than $8 billion in net income for the year. The trouble is that coronavirus vaccines are no longer selling like hotcakes as there's an ample supply of shots for those who want them in most markets.
So despite its stellar research and development (R&D) program and unusually efficient manufacturing and global distribution operations, there's no way Moderna can continue to grow by sales of its vaccine alone. That's why Wall Street analysts are expecting, on average, that it'll bring in only $7.7 billion in revenue for 2023, with 2024 seeing a further erosion to reach "only" $6.5 billion -- and management isn't signaling anything much sunnier.
At the same time, it's also hard to deny the biotech's gargantuan pipeline of vaccines for both preventing infectious diseases and for treating illnesses like cancers. While it's true that many of its pipeline programs are in early-stage clinical trials, it has four programs in phase 3, and an additional four active programs in phase 2.
Even if some of those programs end up failing to impress regulators or pass through their remaining clinical trials, a few will succeed. While those successes may not be enough to generate revenue as high as in the last few years, they'll still cause the company to grow. So in the long term, Moderna will continue to be around, and it's going to start growing again.
The price is so low it's absurd
Aside from its myriad growth opportunities, this company's valuation is astonishingly inexpensive.
At the moment, Moderna's price-to-earnings (P/E) ratio is 7.7. For reference, the wider market's P/E is 21.7, and the average P/E for biotech stocks is 19. In other words, the market is so pessimistic about Moderna's future that, on average, it's willing to pay between two and nearly three times as much for each dollar of net income when it buys a different stock. But the market tends to be fairly short-sighted when it comes to valuations, focusing on the next few years rather than the next decade and beyond.
That's precisely when Moderna's greatest value is likely to begin showing itself as its massive pipeline starts to deliver a regular drumbeat of new products. And it will almost certainly reach that sunny future. With $9.9 billion in cash and equivalents against 2022's total expenses of around $9.8 billion, and only $1.2 billion in debt, it has plenty of time and resources to try, fail, and try again until it succeeds.
In that light, it makes sense to be buying Moderna stock right now with the intention of holding it for as long as possible. It's entirely possible that the stock will continue to lose value in the near term as the market experiences turmoil and as the earnings reports documenting its falling vaccine earnings continue to roll in.
But once the coming difficulties end -- and they almost certainly will -- the biotech should be a star investment once again, and those who invest in it now, when sentiment is poor, will gain the most.
