An overdraft interest in a stock is rarely good news. It signals a lack of faith in the future of an action. And as we saw recently with GameStop (NYSE: GME), can also lead to artificial highs as short sellers rush to cover positions – and sharp falls when that move ends.
So that’s why Modern (NASDAQ: MRNA) investors are probably not satisfied with the increase in interest in stocks since the beginning of the year. But before you imagine the worst, keep reading. That is why I am not concerned with what it means for stocks now or in the future.
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Taking shares now
First, some information on short sales. Investors “sell” a stock by borrowing shares from time to time and then selling at market price. The investor does this with the hope that the stock price will fall before they have to repurchase the shares to return them to the original creditor. A “short squeeze” happens when a heavily sold stock starts to rise – and those who sell it rush to buy back shares before losing a lot of money. In that case, the stock will rise – only to fall later.
Can this happen with Moderna? At the moment, a small squeeze leading to extreme movements is unlikely. Short positions have risen since the beginning of the year, but represent only about 8% of Moderna’s float – or shares available for public trading. This means that the impact would be limited if these investors rushed to buy back or “hedge” their positions.
MRNA short interest data by YCharts
In the case of GameStop and AMC Entertainment (NYSE: AMC) – another company that experienced a short squeeze – short positions represented a much higher percentage of the float. And that explains the dramatic fluctuations in stock prices as investors rushed to cover short positions.
GME percentage of short floating data per YCharts
It is also important to note that Moderna’s short-term interest rates were actually higher at some points last year. Short positions reached just over 10% of the float in August.
This explains the technical reason why I am not concerned with Moderna. But there is still the fact that, since the beginning of January, more and more investors are betting on the devaluation of Moderna’s shares.
Can the winning streak continue?
See why this shouldn’t be too worrying. Moderna recently started selling its two-dose coronavirus mRNA vaccine. The US Food and Drug Administration granted him emergency use authorization in December. Last year, in anticipation of this, investors accumulated shares. As a result, Moderna gained 434% in 2020. Now, some investors are wondering if the shares can continue this winning streak – or if the authorization for the coronavirus vaccine and the billions of dollars in revenue to come are already priced. anyone who thinks these factors are priced may be selling the shares. In fact, the stock dropped earlier this week when a Bank of America analyst downgraded the action from neutral to low performance, citing assessment concerns. Since then, the shares have been recovered.
Whether all these news are priced or not, Moderna’s shares are likely to have more ahead of them. First, the company has new plans for its coronavirus vaccine. The goal is to expand the nomination to the 12 to 17 age group – for a launch just before the back to school period in September. Moderna is studying the vaccine in a phase 2/3 clinical trial for this now.
Moderna also said recently that it will explore the possibility of a third dose of the vaccine as a booster. The idea is to increase immunity against new variants of the virus. And speaking of new variants, Moderna is launching pre-clinical and phase 1 studies of a specific reinforcement for the strain. This would target the peak protein of the South African variant. If successful, it can be adapted to other strains in the future.
Moderna also has plans beyond the coronavirus. The company is reinvesting the profits from its vaccine and plans to start phase 1 studies of preventive vaccines against HIV and seasonal flu this year. Moderna has more than 20 candidates in preparation, including experimental vaccines for other infectious diseases and potential treatments for autoimmune diseases and cancer. The most distant is a possible cytomegalovirus vaccine, two potential cancer treatments and an experimental myocardial ischemia therapy – all in phase 2 trials.
Are the short sellers right?
In the short term, it is possible. There may be a lull in the performance of the shares, as Moderna focuses on its next projects.
But Moderna offers many reasons for steady gains in participation in the future: expanded indications for its coronavirus vaccine, reinforcements to improve vaccine performance and the advancement of other pipeline projects. Through the coronavirus vaccine, Moderna proved that its mRNA technology works in humans. This is a big step for your other programs, as they involve the same technology.
And all of that is great news for long-term investors – no matter what short sellers think.