This Stock Is Up More than 560% This Year, but It Could Drop by 38%, According to Wall Street

Strong clinical and regulatory progress has driven Moderna's (NASDAQ:MRNA) shares significantly higher this year. The biotech has gained over 560%, while the S&P 500 has recorded a comparatively modest gain of about 14%. However, several Wall Street analysts consider Moderna's shares overvalued. The company's average price target of $121 (according to Yahoo! Finance) implies a 38% downside from current levels. Is it time to sell Moderna stock?

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Moderna is breaking new ground

Moderna has made at least two significant achievements this year. The first was earning approval for its influenza vaccine, mFLUSIVA, for patients aged 50 and older. True, there are already flu vaccines on the market, but mFLUSIVA could be a better option. Here's why.

Some traditional flu vaccines work by introducing a harmless version of the virus, which the immune system recognizes and responds to by producing antibodies. So, when patients come in contact with the actual virus, their immune systems are ready to defend against it.

But influenza viruses evolve constantly, and for this approach to work, we need to know which strains will be most prevalent. If vaccine makers get it wrong, the vaccine could target the wrong strain, making it largely ineffective. As the U.S. Centers for Disease Control and Prevention notes, flu vaccines are typically 40% to 60% effective (sometimes lower) during flu season.

Moderna's mFLUSIVA has the same basic approach, but because mRNA vaccines are much faster to manufacture, the strains included in the vaccine can be selected much closer to the flu season, improving the chance of matching the variants that actually circulate.

Moderna's mFLUSIVA proved more effective than traditional flu vaccines in Phase 3 studies. And this is a reasonably large market, worth about $9 billion in 2025, according to some estimates, and it will continue to grow over the medium term. So, this was an important approval for the biotech company.

But Moderna had an even bigger win. The company's intismeran autogene, a personalized cancer vaccine it is developing with Merck (NYSE:MRK), posted excellent Phase 3 clinical trial results. Intismeran autogene improved recurrence-free survival in certain patients with melanoma when administered with Merck's Keytruda, compared to Keytruda alone.

This win addressed an important question many investors had: Can Moderna be highly successful outside the infectious disease market? The answer seems to be a resounding yes. And Moderna's eventual entry into oncology could prove highly lucrative.

Too late to buy?

Moderna's market cap has now soared to $77 billion, a substantial amount for a company that still generates little revenue and is unprofitable. In the second quarter, the company's top line came in at $145 million, versus the $142 million reported in the year-ago period. Moderna posted a net loss per share of $1.97, better than the $2.13 loss per share reported in the prior-year quarter.

Of course, what matters most to the market is future cash flows, and based on recent clinical and regulatory progress, we can expect Moderna's revenue and earnings to improve significantly over the next few years. And the company could also make more clinical progress.

Moderna is running clinical trials for other promising mRNA-based candidates, including some with ambitious targets across oncology, infectious diseases, and other areas. Moderna could target other indications (beyond melanoma) with intismeran autogene.

The personalized cancer vaccine is undergoing several Phase 2 and Phase 3 studies for cancers of the bladder, lung, kidney, and other sites. But even with that taken into account, my view is that it is difficult to justify a $77 billion market cap for Moderna.

The business is innovative and improving, no doubt, but Wall Street may be right: Moderna's shares have risen beyond the company's intrinsic value. At current levels, I'd stay away from the stock and wait for a dip before initiating a position.

Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Merck and Moderna. The Motley Fool has a disclosure policy.