Over the past six months, Moderna’s shares (currently trading at $25.79) have posted a disappointing 19.2% loss, well below the S&P 500’s 5.4% gain. This may have investors wondering how to approach the situation.

Is now the time to buy Moderna, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Do We Think Moderna Will Underperform?

Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why you should be careful with MRNA and a stock we'd rather own.

1. Revenue Tumbling Downwards

Long-term growth is the most important, but within healthcare, a stretched historical view may miss new innovations or demand cycles. Moderna’s recent performance marks a sharp pivot from its five-year trend as its revenue has shown annualized declines of 46.3% over the last two years.

2. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Moderna’s margin dropped meaningfully over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Moderna’s free cash flow margin for the trailing 12 months was negative 113%.

3. Short Cash Runway Exposes Shareholders to Potential Dilution

As long-term investors, the risk we care about most is the permanent loss of capital, which can happen when a company goes bankrupt or raises money from a disadvantaged position. This is separate from short-term stock price volatility, something we are much less bothered by.

Moderna burned through $3.49 billion of cash over the last year. With $5.13 billion of cash on its balance sheet, the company has around 18 months of runway left (assuming its $741 million of debt isn’t due right away).

Unless the Moderna’s fundamentals change quickly, it might find itself in a position where it must raise capital from investors to continue operating. Whether that would be favorable is unclear because dilution is a headwind for shareholder returns.

We remain cautious of Moderna until it generates consistent free cash flow or any of its announced financing plans materialize on its balance sheet.

Final Judgment

We cheer for all companies helping people live better, but in the case of Moderna, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at $25.79 per share (or a forward price-to-sales ratio of 5.2×). The market typically values companies like Moderna based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at a fast-growing restaurant franchise with an A+ ranch dressing sauce.

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