On Wednesday, Novavax (NVAX -7.90%) took a bit of a breather from its impressive run on the stock market year to date. The company's shares dropped by 6% today despite Novavax not reporting any news. The catalyst for this slump may have been the fact that Ladenburg Thalmann analyst Michael Higgins downgraded Novavax's stock from neutral to buy, pointing to valuation concerns.
Largely thanks to its efforts to develop a vaccine for the SARS-CoV-2 virus that causes COVID-19, Novavax's shares are up by more than 2300% since the beginning of the year. And with the company recently landing $1.6 billion in funding from the U.S. government as part of Operation Warp Speed, many believe that Novavax will be one of those companies that goes on to launch a vaccine for COVID-19 on the market.
However, Higgins thinks that Novavax's stock is now "fairly priced," and although the analyst increased his price target for the stock from $50 to $105, the shares closed today's trading session at $98.30 apiece.
It makes little sense to take an analyst's recommendation as sacrosanct. With that said, Higgins makes a fair point. Novavax currently has no products on the market, and the company generates little by way of revenue. During the first quarter, Novavax's revenue came in at about $3.4 million. At the same time, the company's market cap is now above $5.5 billion, while it was less than $150 million at the beginning of the year.
The company's future is intimately tied to its two most promising pipeline candidates: its NanoFlu vaccine -- a flu vaccine for adults 65 and older -- and its investigational COVID-19 vaccine, NVX-CoV2373. While Novavax could continue beating the market if these products go on to earn regulatory approval and turn out to be lucrative, the company's stock could plunge if it fails to launch one (or both) of these products on the market. Investors interested in this biotech stock should keep those risks in mind.