Biotechnology company Moderna is taking Wall Street by surprise today, falling to $104.11 and marking a -9.1% change compared to the S&P 500, which moved 0.0%. MRNA is -42.59% below its average analyst target price of $181.35, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Moderna has underperfomed the S&P 500 by -34.0%, moving -19.0%.
Moderna, Inc., a biotechnology company, discovers, develops, and commercializes messenger RNA therapeutics and vaccines for the treatment of infectious diseases, immuno-oncology, rare diseases, autoimmune, and cardiovascular diseases in the United States, Europe, and internationally. The company is part of the healthcare sector. Healthcare companies work in incredibly complex markets, and their valuations can change in an instant based on a denied drug approval, a research and development breakthrough at a competitor, or a new government regulation. In the longer term, healthcare companies are affected by factors as varied as demographics and epidemiology. Investors who want to understand the healthcare market should be prepared for deep dives into a wide range of topics.
Moderna has a trailing 12 month P/E of 35.7. Unlike its trailing EPS of $2.92, the company's forward EPS is negative at $-5.17 so they do not publish a forward P/E ratio. Calculating it ourselves, we see that MRNA has a forward P/E ratio of -20.1.
The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the first quarter of 2023, the health care sector has an average P/E ratio of 24.45, and the average for the S&P 500 is 15.97.
A significant limitation with the price to earnings analysis is that it doesn’t account for investors’ growth expectations in the company. For example, a company with a low P/E ratio may not actually be a good value if it has little growth potential. Conversely, companies with high P/E ratios may be fairly valued in terms of growth expectations.
When we divide Moderna's P/E ratio by its projected 5 year earnings growth rate, we see that it has a Price to Earnings Growth (PEG) ratio of 0.57. This tells us that the company is largely undervalued in terms of growth expectations -- but remember, these growth expectations could turn out to be wrong!
To understand the company's long term profitability and market position, we can analyze its operating margins, which are the ratio of its net profits to its revenues. Over the last four years, Moderna's operating margins have averaged -238.0% and displayed a mean growth rate of 3.0%. These numbers show that the company may not be on the best track.
To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Moderna's free cash flow, which was $5.38 Billion as of its most recent annual report. Free cash flow represents the amount of money available for reinvestment in the business or for payments to equity investors in the form of a dividend. In MRNA's case the cash flow outlook is weak. It's average cash flow over the last 4 years has been $4.15 Billion and they've been growing at an average rate of 0.0%.
Another valuation metric for analyzing a stock is its Price to Book (P/B) Ratio, which consists in its share price divided by its book value per share. The book value refers to the present liquidation value of the company, as if it sold all of its assets and paid off all debts). Moderna's P/B ratio indicates that the market value of the company exceeds its book value by a factor of 2.34, but is still below the average P/B ratio of the Health Care sector, which stood at 4.16 as of the first quarter of 2023.
Since it has an inflated P/E ratio, a lower P/B ratio than its sector average, and irregular cash flows with a flat trend, Moderna is likely overvalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and consistently negative margins with a stable trend. We hope you enjoyed this overview of MRNA's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.
