When the market gets a stock's valuation wrong by focusing too much on the next few quarters rather than the next few years or decades, there's money waiting to be made for those who dare to go against the grain. That's especially true when it comes to stocks with exceptional growth potential, since dim expectations can make the ideal entry point for investors who are able to look at the broader picture.
On that note, there are two biotechs you've likely heard of that are selling at fire-sale prices right now, even as their enduring appeal looks more promising than ever. Here's why they're cheap and why they could both be excellent investments for people with patience.
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1. BioNTech
Most investors know about BioNTech (BNTX 1.09%) thanks to the coronavirus vaccine it developed in conjunction with Pfizer, but there will be a lot more to talk about in the company's future, and it's selling at a dirt-cheap valuation today.
BioNTech's price-to-earnings (P/E) ratio is a hair over 3, which is dramatically lower than the market's average of 23 or so -- a surefire sign that the market is pessimistic about its near-term ability to grow its earnings. That shouldn't be too surprising as its $18.5 billion in trailing-12-month sales are predicted to fall sharply; Wall Street analysts hold, on average, that its 2023 revenue could be in the ballpark of $8.8 billion.
Declining demand for coronavirus jabs is to blame, and it's safe to say that peak demand for shots will never rival that of the last couple of years.
But BioNTech is still very likely to grow tremendously in the long term. Paradoxically, given their bearish revenue estimates, Wall Street analysts are estimating that its share price will rise by around 57% this year -- and there could be some good reasons.
This year, BioNTech will report clinical updates from a pair of programs for individualized cancer vaccines in phase 2 trials, including one of its candidates for first-line treatment of melanoma. Positive readouts could send the stock soaring, though financial returns would still be several years off.
Management plans to apply for as many as 10 investigational new drug (IND) submissions per year, meaning that it could initiate roughly as many clinical trials. Few other biotechs can sustain that pace of innovation, and eventually, that level of output could lead to commercializing some promising new medicines.
Investors will probably need to wait at least a few more years before BioNTech's exceptional growth potential shows itself once again. For those who are patient, however, its valuation means the stock is selling for peanuts at the moment. Just be ready to hang onto your shares for a long time before the move pays off.
2. Moderna
Moderna (MRNA -0.35%) is facing a similar revenue cliff as BioNTech thanks to the decline of its coronavirus vaccines. But it's also positioned for potentially fantastic long-term returns -- and its valuation is also quite low.
Presently, its P/E ratio is 6.7, but that's because it would take a miracle for the company to bring in anywhere near the $19.2 billion in sales it reported for 2022. Moderna could sell as little as $5 billion of its jab in 2023.
But that doesn't imply anything about the probability of success across its massive pipeline, and that's where the company's true value lies.
In the coming years, Moderna will likely commercialize a few new infectious disease vaccines, including for influenza, respiratory syncytial virus (RSV), and newer coronavirus variants.
It'll also likely make strides in its personalized cancer vaccine (PCV) program in conjunction with Merck; regulators at the Food and Drug Administration just granted a Breakthrough Therapy Designation that'll speed the process. The PCV project will enter phase 3 clinical trials this year, and it'll be the company's most advanced foray into therapeutics using its messenger RNA (mRNA) platform.
But even if it doesn't work out, Moderna will have eight other programs in phase 2 and 48 programs in total. In other words, much like BioNTech, the market is pricing the stock using the biotech's gloomy near-term picture rather than its stellar long-term one, even as Wall Street analysts predict Moderna's shares will rise by around 53%. It
Moderna can fail to commercialize 40 of its programs and still bring eight drugs to market over the next 10 years -- and that'll likely make shareholders who buy it during the doldrums notably better off. And if that's not an exceptionally good risk vs. reward trade-off in biotech, the entire industry might be a bit too risky for your taste.
