Moderna (NASDAQ: MRNA) might be one of only a handful of companies that may benefit from the omicron virus. Indeed, Moderna stock rallied on Friday when news broke of this new Covid strain. The share price jumped almost 21% on the day alone, and then rose another 12% on Monday.
Is it too late to buy Moderna stock for my portfolio after this sharp two-day rally? Let’s take a look.
Moderna’s business and results
As a quick recap, Moderna is a commercial-stage biotechnology company. It focuses on the research and development of vaccines for infectious diseases, including for Covid. The company was founded in 2010 and came to market via an IPO (initial public offering) in 2018. The share price almost flatlined after the IPO, but since 2020 it has increased by a huge 1,900%. At time of writing, the market value of Moderna is close to $150bn.
Speaking financially, Moderna has been a major winner during the pandemic. The US Food and Drug Administration granted emergency authorisation for Moderna’s Covid vaccine in December 2020. The share price has rallied accordingly to reflect the huge growth in profit from sales of its vaccines.
However, in Moderna’s third-quarter results to September, revenue came in at $5bn and net income was $3.3bn, which was considerably below consensus estimates. Moderna stock fell over 30% in the two days following this update. It says to me that the company’s financial performance, and therefore its share price, is highly linked to the current pandemic. It also makes valuing the company difficult to do as a potential investor.
What’s more, the company lowered its guidance for Covid vaccine sales for the remainder of the year. Moderna is now attempting to ship its Covid vaccines internationally. Previously, the US government had been the biggest purchaser of Moderna’s vaccines. This means there is a large customer concentration risk in the business.
Moderna’s omicron guidance
Moderna was quick to update investors after the news broke about the new strain of Covid, saying it has a strategy in place to address omicron. In fact, Moderna is already testing three Covid vaccine booster candidates. The company was seemingly well aware of the risks of potential virus mutations.
It’s understandable, then, why Moderna stock rallied after the announcement of omicron. It’s clearly thinking ahead and developing vaccines with new Covid strains in mind. The company’s profits will likely surge again if a new batch of vaccines is required to combat omicron (or any other future strains of Covid).
Is Moderna stock a buy?
The financial turnaround in Moderna due to the pandemic is remarkable. In the fiscal year ending December 2020, the company made a net loss of $747m. However, for fiscal year 2021, the net income estimate is a huge $11.2bn.
But this is primarily due to the demand for its Covid vaccines. The third-quarter results highlight just how quickly its profits, and therefore share price, can reverse if vaccine demand wanes. The omicron strain may boost sales in the following months, which would benefit the company financially. Indeed, Moderna’s CEO has said current vaccines will be less effective at tackling omicron. But as an investor, the unpredictability of the company’s earnings means I won’t be buying Moderna stock today.
Dan Appleby has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.