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Stocks  | April 3, 2020

With the coronavirus from China continuing to affect the United States, should you buy Moderna (NASDAQ:MRNA) stock? As the world searches for a vaccine, scores of biotech firms have thrown their hat in the ring. But what makes this company a strong contender?

The key appeal is that Modernahas the first testable vaccine. Yet, that shouldn’t be your reason to put in a buy order.

Why? Firstly, don’t conflate “first testable vaccine” with “first mover advantage.” It doesn’t matter if this company or that company starts trials on a vaccine first. It’s the one that receives FDA approval that has the edge.

Secondly, Moderna shares were richly priced, even before the outbreak. With another vaccine catalyst in motion, there’s a lot riding on the company succeeding with both vaccines.

I know, it’s fun to speculate on biotech stocks. Especially when it ties into a newsworthy event. But running through the details, it’s tough to call this name a screaming buy. Let’s dive in and see what’s the scoop with MRNA stock.

MRNA Stock and COVID-19

It’s safe to say investors have high hopes for the company’s COVID-19 vaccine prospects. And I’ll admit that among the vaccine plays out there, Moderna’s recent progress makes it appealing. The company could have its vaccine available for health care workers by Fall 2020. But don’t assume that means their vaccine will hit shelves anytime soon. It’ll still take 12 to 18 months to bring it to market.

Doesn’t having the “first testable vaccine” mean they’ll be first to commercialize? It depends. What if Moderna’s vaccine fails to show impressive results during clinical trials? What if competing vaccine candidates from Gilead (NASDAQ:GILD), Regeneron (NASDAQ:REGN), or Inovio (NASDAQ:INO) prove to be more effective?

You can argue that there’s more to MRNA stock than its coronavirus catalyst. The company has scores of vaccines and therapies in its pipeline. As InvestorPlace’s Luke Lango discussed March 5, there’s huge potential for the company’s prospective vaccine for CMV, or congenital cytomegalovirus.

Creating a vaccine for this major cause of birth defects may be a greater catalyst for Moderna than mRNA-1273. Based on Lango’s analysis, if all goes right, the company could generate billions in pre-tax profits if it receives Food and Drug Administration (FDA) approval.

But the massive upside from the CMV vaccine is likely already reflected in the price of MRNA stock. The company’s market capitalization now stands at around $11 billion. In short, the company needs its CMV vaccine to go without a hitch. Any bump in the road could send shares cratering.

So would dashed hopes of mRNA-1273 becoming the first COVID-19 vaccine. Considering investors have priced in both catalysts, it’s tough to justify a buy.

Shares May Not Offer the Greatest Potential Upside

With the CMV and COVID-19 catalysts priced into the stock, Moderna shares trade at a rich valuation. The company’s enterprise value/sales (EV/Sales) ratio currently stands at 167.3. Granted, that’s a lot more reasonable than Inovio’s current EV/Sales ratio of 266.7.

But, if you’re looking for a pure COVID-19 play, there are other opportunities selling at lower (yet still frothy) valuations. Take, for example, iBio (NYSEMKT:IBIO), which currently trades at a EV/Sales ratio of 62.8. Yes, they aren’t the strongest coronavirus vaccine play out there. A binary play like iBio may be a better than a more diversified one like MRNA stock.

Moderna shares would rally if their COVID-19 vaccine shows success. But the upside, percentage-wise, likely isn’t as great as you’d see with an iBio or an Inovio.

You could take that as a positive. A less binary coronavirus play, downside for MRNA stock could be lower given their other catalysts. Why buy now, when COVID-19 speculation keeps the share price inflated?

Sell Moderna Stock, Pronto

If you’re looking for massive COVID-19 vaccine upside, this stock may not be the best opportunity. Other binary plays could offer a more promising risk/return proposition.

Moderna stock does bring a lot more to the table. Along with the COVID-19 catalyst, you have the CMV vaccine catalyst as well. But, this doesn’t make shares a low-risk opportunity. If the company’s CMV vaccine fails to deliver, much of the stock’s rich valuation would evaporate overnight.

If you bought MRNA stock for its CMV prospects before the outbreak, consider now the time to sell. With COVID-19 speculators more than pricing in upside, cashing out today could be the best call.

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