The Rolls-Royce (LSE: RR) share price crashed more than 80% when international travel ground to a halt during the pandemic. The FTSE 100 engine maker had to take on enormous debt just to survive.
However, savvy investors who bought in four years ago have made more than 10 times their money by now!
Unfortunately, I only got on board when the stock was already on the way up at 149p. But Rolls-Royce shows the sort of dramatic gains that can be secured when a struggling firm wins back the confidence of investors.
Today, at 547p, Rolls-Royce is trading at around 30 times this year’s forecast earnings. That’s a punchy valuation, especially when the widening Middle East conflict could disrupt the company’s supply chains.
The consensus price target among analysts is only 6% above the current level. So I think it’s safe to assume we won’t be seeing the Rolls-Royce share price rise tenfold again any time soon.
That household name I mentioned
By contrast, Wall Street currently has a $98 target on shares of Moderna (NASDAQ: MRNA). That’s around 70% higher than the present $57.
The firm became a well-known name during the pandemic when its vaccines were among those that came to the rescue. Since then though, vaccine fatigue has set in among the public and sales have dropped off a cliff.
The stock is down 42% this year alone and 87% from a 2021 high of $449.
Inflicting further pain on myself, I’ve just checked my portfolio. This shows my holding in Moderna is now down 60% after I bought shares three times between between mid-2022 and early 2024. Ouch.
What on earth has gone wrong here?
Loss of confidence
Put simply, the market has lost faith in management’s ability to accurately forecast demand for Covid (or any other) vaccine sales. In September, the biotech firm adjusted its 2025 revenue guidance, from $3bn-$3.5bn to $2.5bn-$3.5bn. Basically, it widened the range, but not in the direction investors wanted.
It also now expects to reach operating cash flow breakeven in 2028 instead of 2026. It has nearly $8.5bn in cash, which it reckons will be enough to get it there. But with sluggish sales and ongoing losses, there’s plenty of risk here.
Patience needed
I invested in Moderna because its messenger RNA (mRNA) platform has the potential to be highly scalable and go well beyond Covid.
CEO Stéphane Bancel said: “With mRNA, it’s four letters, like zeros and ones with software. You code everything.” This means the platform has digital characteristics, where more data leads to better results. This is unlike traditional pharmaceutical approaches, where a hit with one drug reveals nothing about the success of another.
According to Moderna, the probability of its drug candidates progressing from phase one to phase three trials is approximately six times higher than the industry average. And despite the near-term challenges, the company still expects to launch 10 products in the next three years across three therapeutic areas.
If the stock ever recovered to reach it’s previous height of $449, then we’d be looking at Rolls-Royce-type returns from $57 today. Of course, that’s a long shot and certainly won’t happen overnight. Moderna needs to start winning back investor confidence first.
But given the potential, I’m going to keep my shares.
This post was originally published on Motley Fool
