Moderna (MRNA)'s shares have been heading sideways since December. But that could be changing with the stock up more than 5% this morning.
The thing that I keep going back to again and again is that the company is on track to earn more than $22 a share in profits in 2021, and a not-shabby $16 a share in 2022.
That's a huge amount of profit to generate in 2 years' time. So when I run MRNA's valuation numbers (simply divide the price per share by its earnings per share) I come up with a p/e ratio less than 6 this year, and a p/e of 8 for next year.
Seems to me that those valuation levels are just way...way...WAY too cheap - for a company with a revolutionary drug development platform and a vaccine product that's going to have literally millions of customers (for COVID booster shots) for years on end.
I mean, if Moderna were priced as a profitable growing biotech, it would at least have a p/e ratio of 30 or 40 (typical for almost any growth stock).
So if we use a p/e ratio of 30...and multiply by its forecast of $22/share in profits...we get a stock price of more than $600 - triple above the current price of the stock.
Sounds crazy I know. How could the stock be such a bargain?
Maybe I'm wrong. On the other hand, these kinds of disconnects happen all the time on Wall Street.
The hard part is pulling the trigger and buying.
We of course already have MRNA tracked on its original entry price in the GBR portfolio.
But this is an interesting entry spot for a trade if one doesn't own MRNA already, with a purchase at the current price of $141 (expecting the stock to keep working its way higher in coming weeks & months as Wall Street prices in that $22 a share profit).
If we're wrong about the stock, we'd sell when it declined below $120. So our risk is roughly a loss of $20 a share. Our potential reward is multiples above that. Keep your losses small, let your winners run.
It's that simple.