Cathie Wood Is Buying Up Shares of This Beaten-Down Biotech. Should You?

Cathie Wood is known for betting on innovative companies, with the idea that they'll deliver game-changing results over the long term. The founder of ARK Invest loves these players' exciting products or product candidates and their potential for earnings and share performance down the road.

This top investor usually picks up these stocks when most of the market is betting against them. And that means she gets in at a great price.

Wood's bets are winning this year, with the flagship ARK Innovation ETF climbing more than 50% so far. In the investor's latest shopping spree, she snapped up more than 98,800 shares of Moderna (MRNA 1.69%) over a two-day period.

The coronavirus vaccine maker's stock has slumped over the past year amid concerns about post-pandemic sales. But Wood clearly isn't too worried. Should you follow her lead and snap up Moderna, too?

Wood adds to her Moderna position

Wood added the Moderna shares to her ARK Genomic Revolution ETF, an exchange-traded fund specializing in healthcare players with groundbreaking technology. The last time she bought Moderna was back in June of 2022. Since then, Wood has lost about 17% on her investment, but the star investor isn't letting that stop her.

Moderna's underperformance in recent times isn't surprising. The biotech company brought in billions of dollars in revenue and profit in the earlier days of the pandemic. Now, though, it faces a significant drop in demand and, therefore, in earnings as we move toward a post-pandemic environment. In its most recent earnings report, vaccine revenue dropped 69%.

As Moderna's only commercialized product, the vaccine generates all of the company's product revenue right now. So a decline in demand is bad news.

But it's important to put this in perspective and take a close look at Moderna's prospects for potential launches over the next few years. And here, the news looks a lot brighter.

First, let's consider the coronavirus vaccine. Moderna predicts demand for annual coronavirus boosters will resemble that of the flu shot market. About half of Americans go for an annual flu shot, so if the coronavirus vaccine follows this path, Moderna still may bring in billions of dollars in sales (even if they're lower than before).

A respiratory vaccine giant

At the same time, Moderna is progressing rapidly toward becoming a respiratory vaccine giant by 2027. The company expects to launch respiratory syncytial virus (RSV) and flu vaccines next year. These and the coronavirus vaccine will make up that portfolio.

Moderna aims to conquer as much as half of this market, or about $15 billion. The company says these products should generate annual free cash flow of $4 billion to $9 billion, and that could move higher as time goes by.

So far, we've just spoken of Moderna's respiratory vaccine program. But the company actually has more than 40 programs in development in a range of areas -- from investigational HIV and cancer vaccines to a potential inhaled pulmonary treatment for cystic fibrosis. This offers Moderna plenty of opportunities for additional revenue over time, even if only a handful of these candidates reach the finish line.

All of this means the concerns surrounding coronavirus vaccine revenue probably are overdone. Yes, Moderna's earnings are set to decline from earlier pandemic levels. But the pandemic was an unusual situation, making it a difficult and unfair point of comparison.

A dirt cheap valuation

Instead, we should look at Moderna's prospects in an annual coronavirus booster market and the potential of other programs moving forward. The company has presented a detailed plan for its respiratory portfolio -- and it's one that should make us optimistic.

At the same time, the shares today trade for only about 8x forward earnings estimates. And that seems dirt cheap for an innovative biotech company, especially one that already has product revenue.

It's no surprise that Wood, who loves bargains and game-changing technology, has been scooping up Moderna shares. They may not take off right away, but that's OK. Wood favors holding stocks for the long term, so she doesn't mind waiting for the rest of the market to recognize the quality of one of her favorites.

Should you add this dynamic player to your portfolio, too? Moderna has what it takes to deliver earnings growth and share performance over the long term, and that makes it a great buy today -- for Cathie Wood and for you.