It was a little over a year ago that Novavax (NVAX 2.95%) submitted its final data packages to the U.S. Food and Drug Administration (FDA) for its COVID-19 vaccine, paving the way for it to obtain Emergency Use Authorization (EUA) several months later. But despite making it to the finish line, it appears to have been too little too late for the stock, which has come crashing down since then.
However, with COVID cases on the rise now and Novavax trading at a significantly lower price, there may be a bullish case for buying the healthcare stock. Could Novavax be a good contrarian investment to add to your portfolio?
A lot hinges on the need for boosters and vaccines
The economy is, for the most part, back to normal. But that doesn't mean that the demand for vaccines and booster shots has disappeared. Cases of COVID-19 have been rising sharply over the past six months, and that could heighten the urgency and need for booster shots. Meanwhile, China continues to battle COVID and only recently ended its latest round of lockdowns.
Data by YCharts.
The FDA authorized Novavax's vaccine for EUA in July of last year. And a few months later, in October, the agency also permitted the use of Novavax's shot as a booster for people where an mRNA-based bivalent one wasn't available or "clinically appropriate."
And while the development was positive, obtaining authorization wasn't as meaningful as investors may have hoped. For the period ending Sept. 30, 2022, the company generated $734.6 million in revenue, with the bulk of that coming from its vaccine, NVX-CoV2373. However, Novavax still incurred a loss of $168.6 million. And investors should be cautious with any guidance that the company offers, as last year, Novavax ended up cutting its full-year 2022 revenue guidance in half to around $2 billion.
The company is sitting on tons of cash
As of the end of the most recent quarter, Novavax reported having $1.3 billion in cash and cash equivalents on its books. That can give the business a bit of safety in that it means Novavax can weather the storm should it endure a tough year in 2023. Over the trailing 12 months, it has used up $640.5 million to fund its day-to-day operations, so that money can give the business a strong buffer and plenty of liquidity to fund its growth and day-to-day operations.
However, a strong cash balance only buys time. And as is evident with the company recently completing an offering, it doesn't guarantee investors won't have to worry about dilution, either.
Does the price justify the risk?
Down a staggering 93% in 2022, Novavax's valuation is now down to less than $900 million. It's a high-risk, high-reward stock that could certainly have the potential to rise in value if demand for its boosters and vaccines were to help deliver a surprise in 2023. But with an uncertain future this year and in the long run, beyond COVID, there's just an enormous cloud over Novavax.
The company simply doesn't have the track record that would inspire enough confidence for me to take a chance on the business. It was slow in submitting data to regulators for its COVID-19 vaccine, with delays causing problems, and for it to slash its guidance by 50% was a gross miscalculation. Novavax is a volatile and unpredictable stock, making it an unsuitable investment for most investors.
