On Feb. 8 of last year, shares of the coronavirus vaccine developer Novavax (NVAX 3.54%) commanded a price near $319, with the market's fervor for its jab feeding more and more into the hype. Of course, if you bought shares of it on that day and held them until now, you'd (unfortunately) be looking at some gnarly losses in excess of 70%. But, as the mantra of long-term investors goes, if you hold on for just a while longer, things just might look up.
To return to $300 from its current level near $90, the company's value would need to rise by over 225%. That's definitely not a swing that's possible in the near term -- or is it?
Image source: Getty Images.
Triple-digit prices are far closer than they might appear
Given that its coronavirus vaccine is Novavax's only product on the market, sales of the jab are the single biggest factor in its share price. And after a bumpy initial rollout, the company is finally securing the regulatory approvals that it needs to sell its shots across the globe. Its manufacturing operations are in full swing, and it should be able to output more than two billion doses this year, thereby fulfilling its order book from 2021.
So, the business is definitely making the transition from story stock to bonafide moneymaker, which is critically important for its chance of returning to the lofty heights of early 2021. But, the market has changed a lot since then, and the expectations for Novavax's earnings may already be priced in.
Let's interrogate this issue a bit further by making a simple financial model.
At the moment, Novavax's market cap is near $7 billion, its price-to-sales (PS) multiple is 5.29, and its trailing revenue is $1.2 billion. For its shares to be worth $300, its market cap would be $22.68 billion, which is based on the fact that there are 75.61 million shares outstanding.
At its current valuation, that means the company would need to be reporting around $4.3 billion in annual revenue to hit the target.
As crazy as it sounds, that's not a bridge too far for this company in 2022. In fact, the average of the revenue estimates for 2022 from six analysts covering the stock works out to be $4.94 billion. That would be growth of 311.67% compared to its trailing sales, for those who are keeping track.
And it's probable that Novavax will realize that sales potential. After all, the doses are being made right now, and plenty of customers are waiting to receive them worldwide.
Whiplash isn't very likely
There's just one (big) problem with the narrative I laid out above: Novavax's valuation isn't holding steady, and the stock has been plummeting recently.
Shares have fallen by almost 40% year to date, even though management has reported approval after approval from regulators. Nor is it the only company whose shares seem to be immune to rising after reporting good news. Moderna, a major coronavirus vaccine stock and competitor, fell by around 40% in the same period.
In short, the market's extreme hype in 2021 led to bloated valuations in vaccine makers, which drove Novavax and others to soar. Now that both the pandemic and the market conditions have changed, jabs aren't being treated like biotechnologically-produced gold anymore.
Unless those conditions change or the business is able to significantly outperform expectations, it's hard to imagine Novavax reaching $300 anytime soon. But it's still possible. If the company can convince investors that it's capable of squeezing more revenue from its jabs in 2023 than it's anticipated to in 2022, its shares will be back on their way toward the high water mark, and they might even get all the way there.
