Pfizer
Pfizer Inc. is an American multinational pharmaceutical corporation. The company is currently in the news because of the distribution of its Covid19 vaccine. I am pretty sure that you have heard its name before because it does not only offer vaccines.
The company sells drugs for the treatment of oncology, endocrinology, immunology, cardiology, and neurology. With this in mind, if you are buying Pfizer Inc. to profit from the sale of the COVID19 vaccine, you will be buying many other business models. That’s one reason not to buy shares, but there are many other reasons.
First, the company’s valuation is very expensive. Pfizer Inc. trades at 5x sales, and its PE ratio is close to 15x. In 2022, the company’s sales growth is expected to be negative. It does not make any sense. A business with declining sales does not usually trade at 5x sales:
That’s not all. In the last three years, Pfizer has seen an increase of more than 55% in its total debt. As a result, the financial risk for shareholders has increased quite a bit. Even if the company is able to pay its debts, the interest expenses push down the company’s net income. That’s never ideal:
I believe that most traders out there are selling Pfizer because of the media attention received. Notice that Google Trends shows a massive increase in the amount of searches of the word Pfizer. Newspapers, journalists and politicians are delivering bad news about Pfizer, which may damage the reputation of the company, and will most likely create selling pressure in the stock market:
I wouldn’t short sell the company. Don’t do that. With that, the most recent behaviour of short sellers is very interesting. They have recently acquired a significant amount of short positions in the stock. Let’s see what happens:
Moderna
Moderna is also delivering its own COVID19 vaccine. The company is quite young. The management has seen a massive increase in its net sales; from $135 million in 2018 to more than $500 million in 2020. The financial figures delivered by the company are very impressive. However, right now, I wonder whether the valuation is too large:
Moderna trades at 134x 2020 sales and 7x 2021 sales. In 2020, the company’s PE ratio was negative because Moderna did not report positive net income. Analysts expect the company to have a PE ratio of 14x. In my opinion, market analysts could not take into account the vaccine distribution issues that we are seeing right now:
Surprisingly, in 2019 and 2020, the amount of short positions in Moderna increased a lot. From less than 2% in 2018, the percentage of shares outstanding short increased to 6.2%. Clearly, certain market participants out there believe that the company is overvalued:
Conclusion
With many short sellers believing that Pfizer And Moderna are about to crash, we don’t know whether holding shares is a good idea. Besides, if the number of COVID19 cases commences to decrease, traders will most likely sell shares of Pfizer And Moderna. As a result, I would expect the share price to decline sharply.
Disclose: We hold no shares of Moderna or Pfizer, and We Were Not Paid To Write This Report.
