Scottish Mortgage Investment Trust (LSE:SMT) shares have fallen 32% over the last 12 months. The downward trajectory is even more pronounced over the last six-to-eight months.
Scottish Mortgage is a FTSE 100-listed fund that focuses on growth and tech stocks. It has significant exposure to American, Chinese and unlisted shares. In recent years had been one of the most successful funds around.
The stock ticked upwards last week, and this maybe mark the end of its downward track. Growth stocks have lost a lot of value and in comparison to six months ago, they do look cheap. China is also relaxing its Covid measures and there’s certainly plenty of growth potential in Chinese stocks, which have underperformed over the last year.
But while the stock might look more attractive after its fall, I’m still not buying. Here are two reasons why!
Moderna
Moderna (NASDAQ:MRNA) is Scottish Mortgage’s biggest holding. The vaccine-maker accounts for 6.25% of SMT’s portfolio.
I’m very concerned about Moderna’s future. Its Covid-19 vaccine is its only commercial product and its pipeline for non-Covid drugs and vaccines is pretty sparse.
Firstly, as Covid becomes less virulent, I’m uncertain about vaccine usage. I think it’s unlikely that we’ll see the vaccines rolled out to entire populations again. Revenue from Covid-19 vaccines is expected to be $21bn in 2022, but this could fall to $2bn by 2024, according to some forecast.
Secondly, while Moderna may have some lifesaving products in the pipeline, including vaccines against Zika and cancer, it may be a long time before they reach the market. It’s worth noting that the majority of products in development are related to Covid-19.
Based on last year’s performance and the current share price, Moderna looks like good value. It has a price-to-earnings ratio of just four and a price-to-sales ratio of just 2.5. But with revenues and profits set to fall considerably, the forward metrics are much less attractive.
As such, I’m concerned that Moderna is Scottish Mortgage’s largest holding.
Tesla
Tesla (NASDAQ:TSLA) stock is Scottish Mortgage’s fourth largest holding. The stock fell considerably in April, extending losses over the past six months.
Despite the fall, the electric vehicle (EV) maker is still vastly overvalued, in my opinion. It has a P/E ratio of 102 and a P/S ratio of 12.2. Yes, other EV makers are not yet profitable, but I think Tesla’s dominant position in the market has been overstated.
I also believe Tesla will come under increasing pressure from established car manufacturers. For example, Mercedes already has an impressive offer in the space. Meanwhile, brands like MG have much cheaper offerings.
Equally, I think there’s better value out there. Competitor NIO trades at much lower multiples and it has some potentially game-changing technology, including its capacity to replace empty batteries in a number of minutes.
I won’t be buying
So I won’t be purchasing Scottish Mortgage stock. In addition to Moderna and Tesla, I’m unsure as to whether some of its other biggest holdings, including Tencent and Nvidia, represent good long-term prospects.
Nevertheless, there could be some short term growth here, especially as China relaxes Covid restrictions and Chinese stocks tick upwards.
