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Is Moderna Wasting a Golden Opportunity?

Moderna (NASDAQ: MRNA) is a company with an uncertain future. This year is likely going to be another strong one for its business; it has $21 billion in signed purchase agreements for its vaccine. But beyond that, there is no shortage of question marks surrounding how much revenue it will generate in the future and where its growth will come from. Deaths related to COVID-19 are declining, and that could result in significantly less demand for the company’s vaccine next year. 
In the meantime, Moderna is raking in profits. The company may need to take action sooner rather than later to diversify its operations (e.g., an acquisition) to at least give investors something to rely on for strong revenue growth in a world where COVID becomes trivial. If it doesn’t act soon, it could regret not doing so.
Image source: Getty Images.

The company’s cash balance has grown significantly over the years
Prior to the pandemic, Moderna reported less than a couple of billion dollars worth of cash and investments. But with its COVID-19 vaccine being a huge success and resulting in billions of revenue in recent years, that has led to a much stronger cash position:

Source: Company filings. Chart by author.
At nearly $20 billion in cash, the company is sitting on a pile of money right now. That’s great for the business because it means there are plenty of options for determining how it should grow its operations. Whether that’s investing in its current pipeline or taking on a big acquisition, the company could even do both. Its research and development costs during the first three months of 2022 totaled $554 million and increased 38% year over year. That represents just over 9% of the $6.1 billion in revenue it generated during the period. It still reported just under $2.8 billion in operating cash flow for the quarter; investing in its current operations shouldn’t prevent Moderna from exploring acquisitions.
Why the time to make a move could be right now
Moderna’s strong balance sheet is a positive, but cash, like any other resource, can be wasted if not used effectively. The danger right now is that with the markets in turmoil and valuations falling, there may not be a better time to take on a potential acquisition.
Many healthcare stocks are trading near their 52-week lows right now, and buying them outright or investing in them could help bolster Moderna’s prospects into next year and beyond. Whether it’s a combination of some small biotech companies or a larger, more established business, Moderna has the cash to make a big move. I’ll avoid speculating on possibilities, but investors would only need to look at businesses with market caps of less than $20 billion that could be possible options here. 
The risk that Moderna runs by waiting is that months from now, if the markets recover, the valuations could also recover, making an investment more costly in the future than it would have been today. 
Should investors wait to invest in Moderna?
Shares of Moderna are down more than 45% this year, making the S&P 500’s 15% losses during that time look tame. And despite looking cheap, trading at a forward price-to-earnings multiple of less than five, that can be misleading given the uncertainty of Moderna’s business beyond the current year.
Although the company is coming off a stellar quarter where revenue tripled, the safer approach today is definitely to wait to see what Moderna does with all of its cash. Without a significant move, its top and bottom lines could drop heavily next year. That makes investing in the stock right now simply too risky, given the unknowns.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy. –

Moderna (NASDAQ: MRNA) is a company with an uncertain future. This year is likely going to be another strong one for its business; it has $21 billion in signed purchase agreements for its vaccine. But beyond that, there is no shortage of question marks surrounding how much revenue it will generate in the future and where its growth will come from. Deaths related to COVID-19 are declining, and that could result in significantly less demand for the company’s vaccine next year. 

In the meantime, Moderna is raking in profits. The company may need to take action sooner rather than later to diversify its operations (e.g., an acquisition) to at least give investors something to rely on for strong revenue growth in a world where COVID becomes trivial. If it doesn’t act soon, it could regret not doing so.

Image source: Getty Images.

The company’s cash balance has grown significantly over the years

Prior to the pandemic, Moderna reported less than a couple of billion dollars worth of cash and investments. But with its COVID-19 vaccine being a huge success and resulting in billions of revenue in recent years, that has led to a much stronger cash position:

Source: Company filings. Chart by author.

At nearly $20 billion in cash, the company is sitting on a pile of money right now. That’s great for the business because it means there are plenty of options for determining how it should grow its operations. Whether that’s investing in its current pipeline or taking on a big acquisition, the company could even do both. Its research and development costs during the first three months of 2022 totaled $554 million and increased 38% year over year. That represents just over 9% of the $6.1 billion in revenue it generated during the period. It still reported just under $2.8 billion in operating cash flow for the quarter; investing in its current operations shouldn’t prevent Moderna from exploring acquisitions.

Why the time to make a move could be right now

Moderna’s strong balance sheet is a positive, but cash, like any other resource, can be wasted if not used effectively. The danger right now is that with the markets in turmoil and valuations falling, there may not be a better time to take on a potential acquisition.

Many healthcare stocks are trading near their 52-week lows right now, and buying them outright or investing in them could help bolster Moderna’s prospects into next year and beyond. Whether it’s a combination of some small biotech companies or a larger, more established business, Moderna has the cash to make a big move. I’ll avoid speculating on possibilities, but investors would only need to look at businesses with market caps of less than $20 billion that could be possible options here. 

The risk that Moderna runs by waiting is that months from now, if the markets recover, the valuations could also recover, making an investment more costly in the future than it would have been today. 

Should investors wait to invest in Moderna?

Shares of Moderna are down more than 45% this year, making the S&P 500‘s 15% losses during that time look tame. And despite looking cheap, trading at a forward price-to-earnings multiple of less than five, that can be misleading given the uncertainty of Moderna’s business beyond the current year.

Although the company is coming off a stellar quarter where revenue tripled, the safer approach today is definitely to wait to see what Moderna does with all of its cash. Without a significant move, its top and bottom lines could drop heavily next year. That makes investing in the stock right now simply too risky, given the unknowns.

David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Moderna Inc. The Motley Fool has a disclosure policy.

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