This morning, two of the stars of the Covid era, Shopify (SHOP) and Moderna (MRNA) reported Q1 earnings. Based on the premarket reaction, the consensus view seems to be that Shopify knocked it out of the park, whereas Moderna’s report was not particularly inspiring. As I write, SHOP is treading eighteen percent above Wednesday’s close, whereas MRNA is basically flat, but does that reflect the long-term prospects of each company?
With the benefit of 20/20 hindsight, many of the pandemic related market moves that we saw in 2020 and 2021 were ridiculous, including those in these these two stocks. MRNA was priced as if the massive spike in revenue and profit that they saw from their rapid development of a Covid vaccine would go on forever, while the market assumption underlying the price of SHOP seemed to be that we would all stay home and sell home-baked cookies or whatever long after a return to more conventional work was feasible. Obviously, neither of those things turned out to be true, and both stocks collapsed from their 2021 highs as a result.
Figure 1: MRNA 3-Year 1-Week Chart
Figure 2: SHOP 3-Year 1-Week Chart
After a sharp pullback, however, the two stocks have behaved very differently. MRNA has basically bounced along at or close to the two-year lows, whereas SHOP has basically doubled since hitting a low of around $23 in October of last year. Neither that nor this morning’s differing reactions to basically very similar Q1 results, however, seem to reflect each company’s logical long-term prospects.
Shopify surprised the market with a small profit, but the positivity seems to stem mainly from their announcement that they are shrinking, cutting staff by twenty percent, and selling the logistics arm of their business. That would indeed be a welcome thing if the company was struggling to meet reasonable market expectations for profits, but current pricing implies such massive growth that that just isn’t the case. Going into this release, SHOP was trading at around 5,000 X forward earnings. Maybe I am over-simplifying things here, but I just can’t see how that is justified for a company that is cutting back.
Moderna also trades at a high multiple. In fact, there is so much uncertainty around their profits that there is no realistic number that can be used as a forward P/E. The difference, though, is that the kind of massive growth that they saw during the pandemic is probably not a one-off. They revolutionized vaccine development and production during Covid, and the technology they have developed has uses beyond the pandemic. They have shown that they can respond quickly to a changing medical landscape, and that is in addition to other advances in their pipeline such as the possibility of vaccines against certain types of cancer.
The redeeming factor for Shopify is that they are not just about small, home-based retail. They have growing commercial business too, so I am not saying that they can’t grow, even if the boom in small, home-based e-commerce that fueled so much of their early growth was a a bit of a fad. It’s just that even after the pullback, the valuation implies the kind of growth they saw in 2020, and that just isn’t realistic.
Moderna, on the other hand, has a clear runway to sustained growth and profitability in the future. The stock may not be as sexy a pick right now, but of the two pandemic stars that reported this morning, it is the one that offers the best potential return on a five- to ten-year basis and therefore the one that I would rather buy this morning.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Martin Tillier
Martin Tillier spent years working in the Foreign Exchange market, which required an in-depth understanding of both the world’s markets and psychology and techniques of traders. In 2002, Martin left the markets, moved to the U.S., and opened a successful wine store, but the lure of the financial world proved too strong, leading Martin to join a major firm as financial advisor.
Read Martin's Bio