Moderna shares are beating the rest of the S&P 500. Am I buying?

Moderna shares have had a fantastic 2021, and have risen far more than the rest of the S&P 500. After its dip last week, should I be buying?

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2021 has been a fabulous year for the Moderna (NASDAQ: MRNA) share price, with it rising over 240% so far. This cements the stock as the top performer in the S&P 500 this year. But some people are questioning Moderna’s incredible rise, even after its successful Covid vaccine. This was the reason for the company’s dip last week, when it fell from $485 to $380. Accordingly, is there further to fall for this pharma stock, or is this now the perfect time to buy?

What has driven the Moderna share price?

Although the Moderna share price fell back slightly last week, this does not take away from its excellent performance in 2021. This has been driven by a few major factors.

Firstly, the company’s results have excelled. Indeed, in the recent second quarter trading update, revenue reached around $4.3bn, a 125% rise from the previous year. Net income was also able to reach nearly $2.8bn, a 128% rise from the previous year. This demonstrates the success of the company’s Covid vaccine. There is also evidence to show that protection provided by the vaccine begins to wane after several months, and hence, bolster vaccinations may be required. As such, the vaccine may continue to provide large revenues for the company for the foreseeable future.

Secondly, in July Moderna was added to the S&P 500. This often increases demand for the stock, because many fund managers use index funds and only buy stocks that are in the S&P 500. Since its addition, the stock has managed to rise around 50%.

Is there further to rise?

The recent drop has certainly made Moderna shares a more attractive proposition, and this may lead to investors buying on the dip. Further, the pharma company trades on a forward price-to-earnings ratio of 20 for 2021. In comparison to other pharma stocks, many of which are unprofitable, this is not overly expensive. These are reasons that indicate there may be further to go. 

On the other hand, there are reasons why Moderna may have reached its peak. Indeed, I worry that it may not be able to maintain its growth due to increased competition in the vaccine market. The Novavax vaccine is one example that is expected to arrive later this year. I am also concerned by the fact that the vaccine is Moderna’s only commercially approved product. Indeed, the company’s other vaccines, that aim to guard against HIV, the flu and other viruses, are only at a very early stage. This dependency on the Covid jab may lead to problems down the line, especially if, and when, demand starts to weaken.

Would I buy?

There are certainly a lot of things to like about Moderna shares, and at the moment, the company is performing excellently. But I worry about the future of this business, especially due to the lack of other products. This differs from other pharma companies like Pfizer, which has a variety of other products to accompany its vaccine. For this reason, I’m not going to buy Moderna. I think there’s still further to fall, before a buying opportunity emerges.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be considered so you should consider taking independent financial advice.

Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has recommended Moderna Inc. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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