Moderna (MRNA -1.39%) is now far below its peak market cap last summer of nearly $200 billion. But when will the vaccine stock be a screaming buy for investors? In this Motley Fool Live video recorded on Jan. 5, Fool contributors Keith Speights and Brian Orelli discuss how low Moderna needs to go to make the stock a clear bargain.
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Keith Speights: Now, another company has already been a huge winner with COVID-19 and I'm talking about Moderna. You and I both discussed Moderna quite a bit over the last year or so, and we talked about Moderna being overpriced back when its market cap topped $150 billion. I think it got not quite to 200 billion, but very close to that level and you and I both agreed the stock was overpriced at that level.
Now, though, the stock is valued at "only," I use scare quotes here, only $95 billion or so. A little less than $100 billion. Brian, at what price point do you think Moderna needs to be for this stock to be a screaming buy?
Brian Orelli: Yeah, I think when it was around 150 billion we were comparing it to Bristol Myers Squibb, which has trailing-12-month sales of $45 billion and now we're down to the size of the company like closer to Gilead Sciences, which has trailing-12-month sales of $27 billion.
So at that valuation, assuming that Moderna could have in the $20 billion range, I think it's reasonable right now if Moderna could keep up selling its vaccine at the same level in perpetuity, but I'm not sure I would really make that bet yet. I don't think that it's going to be able to sell the same amount of vaccine in 2024 as it did in 2021 or 2022. If the company can do five billion annually and we give it a generous price-to-sales ratio of 8, that would put the valuation at about 40 billion, so maybe half of where it is right now or a little less, and then maybe you want to add in 20 billion in cash that they might have in a few years. So maybe you get to evaluation of $60 billion reasonable on a few years, but that requires you to be a lot less uncertainty.
So you'd have to be convinced that it could sell five billion dollars in sales annually and then help develop out the rest of its pipeline. Right now it would have to be under that, given the uncertainty and then there's the smaller cash that it doesn't have $20 billion in cash quite yet.
Speights: Brian, I didn't do the kind of the back-of-the-envelope kind of analysis that you did, but my initial reaction when I personally thought about this question, my initial reaction was around $60 billion, which is what you said. I think when Moderna was a $60 billion market cap, I was saying this is probably a pretty good buy just because of its potential over the long run.
When it started to get above $80 billion, $100 billion, then I was like, "OK. This one probably has run a little bit too much, at least for now." It could certainly be worth that and more down the road somewhat.
