To say that Novavax (NVAX 2.06%) investors haven't had a smooth ride recently is a massive understatement. Amid a string of successes (and a few setbacks) in getting its coronavirus vaccine, Nuvaxovid approved by regulators in the European Union, South Korea, and with the World Health Organization, the company's stock has plummeted, falling around 55% compared to its price six months ago and 57% since a mere 30 days ago.
But Nuvaxovid is now being rolled out where it's approved, and revenue is rolling in. Has the stock fallen enough to be worth a purchase based on the expectation of future jab sales and vaccine development, or should investors stay away for the time being?
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The valuation is finally starting to look ripe
One argument in favor of Novavax stock at the moment is that its valuation has finally fallen into a more reasonable territory after a prolonged period of being sharply inflated.
On June 30, 2020, the vaccine stock's price to sales (P/S) ratio was a sky-high 138.92, but now it's around 10. For reference, the biotechnology industry's average P/S is around 5.3, and Moderna, a major competitor, clocks in at around 9.18. So, even if Novavax's valuation is still a little bit elevated in comparison to its industry and a comparable competitor, new investors could at least have some confidence that the shares are no longer as expensive as they were at the peak of the vaccine stock hype.
If everything goes according to plan, an average of the revenue estimates compiled by five analysts indicates that Novavax could bring in $4.6 billion from Nuvaxovid sales this year. But given its prior issues with scaling up its manufacturing operations and submitting its regulatory filings on time, can Novavax actually realize the vaccine revenue the market is pricing into its valuation? That remains to be seen, though what's clear is that there is still tremendous global demand for jabs.
As many as 88% of people in high-income countries and 93% of people in upper-middle-income countries still need to get a booster shot, according to the company. In lower-middle- and low-income countries, 66% of people haven't had their primary two-dose vaccination series, and 98% lack a booster shot.
Right now, the company has committed to delivering at least 430 million doses via advance purchase agreements with countries. Also, it'll see some income from licensing agreements for approximately 400 million doses.
Future success isn't guaranteed
Though Novavax's market still has room for it to grow into and its vaccine is continuing to accrue approvals for sale across the world, there are still a few risks for investors to beware of.
First, it'll continue to face powerful competitors like Moderna that were faster to reach the market. Even as it moves into advancing newer projects, like its combination influenza and coronavirus vaccine, it'll be racing against identical efforts that may be completed sooner or may prove to be more effective.
For rapidly emerging challenges like developing an omicron-variant-specific jab, it's hard to see how the business could move fast enough, given its prior stumbling blocks in scaling up its manufacturing operations and assembling regulatory submissions. On the other hand, there's no reason to believe that competitors can do much better, especially considering their prior efforts to develop a delta-variant-specific vaccine ended up being made irrelevant by the variant's recession.
It's probably better to hold off for now
Despite its more favorable valuation than in the past, in my view, Novavax's stock is too risky to approach right now. More worrisome than the presence of competitors and its past manufacturing issues is the market's apparent souring on the stock. Even in the face of a drumbeat of fundamentally good news about Nuvaxovid's global approvals and its rollout, shareholders have continued to take heavy losses.
The negative sentiment is likely temporary, but there's no reason to take on the additional risk, especially when there are plenty of other stocks that don't have the same issue. If things look like they're turning around over the next few months, the stock might be worth an investment once again.
