Strictly speaking, the COVID-19 pandemic isn't over. But it's probably fair to say the worst is in the rearview mirror. And many of the so-called "pandemic stocks" that rose in popularity in the early days of the outbreak have lost steam.
That includes the likes of vaccine maker Novavax (NVAX 98.66%) and home fitness specialist Peloton Interactive (PTON -5.61%). Moreover, neither of these companies has particularly attractive prospects, and most investors should stay away. Let's consider why.
1. Novavax
Novavax made a huge bet on the coronavirus vaccine market early in the pandemic. The company was counting on three things. First, it aimed to launch its product early enough to be one of the leaders in this space. Second, it hoped that this market would represent a massive opportunity. And third, Novavax thought it had a differentiating factor compared to many other vaccine makers in this race.
Many people expressed skepticism regarding the mRNA-based candidates that dominated the hunt for an effective vaccine early on, but Novavax's Nuvaxovid is a protein-based vaccine. Unfortunately, the company was unable to realize its ambitions. The coronavirus vaccine market was, in fact, massive. Moderna and Pfizer generated tens of billions in combined revenue from their respective products.
But Novavax joined the race too late where it mattered most: in the U.S. Nuvaxovid earned Emergency Use Authorization (EUA) in mid-2022. By then, the market was already saturated. Novavax's application for an EUA was delayed due to manufacturing issues. To make matters worse, the company's differentiating factor failed to attract a significant number of people.
Novavax generated about $2 billion in sales from Nuvaxovid last year. Although the coronavirus vaccine market will be somewhat unpredictable, what we know is that demand for vaccines will fall off a cliff, meaning Novavax's revenue could be substantially lower this year. And even with a tiny market capitalization of $772 million, it's not clear that Novavax's shares are a bargain at current levels.
Add that to the fact that even management isn't sure the company can survive the year. None of Novavax's pipeline candidates can save the day since they are unlikely to earn approval anytime soon. That's why it's best to keep a safe distance from Novavax. There are better biotech stocks to buy in April and hold for a while.
2. Peloton Interactive
Peloton was all the rage in 2020 and 2021. People stuck at home due to government-imposed lockdowns looked for other ways to stay active, and Peloton was happy to oblige.
But things have changed substantially since then. The company now struggles to sell its pricey connected-fitness products while recording net losses. In its latest earnings report, for the second quarter of its fiscal year 2023 (ended Dec. 31), Peloton's revenue declined by 30% year over year to $792.7 million.
The net loss came in at $335.4 million although that was better than the net loss of $439.4 million recorded in the year-ago period. Peloton has been looking to cut costs in a variety of ways. For instance, in a move that's been popular on Wall Street over the past year, it has eliminated thousands of jobs. The company has also decided to outsource the manufacturing of its fitness products to decrease expenses.
These efforts have paid off, at least somewhat, since Peloton's net losses are shrinking. But the company does remain unprofitable, and to make the stock attractive, it isn't enough that the bottom line is getting slightly better. Peloton needs solid revenue growth and a path to profitability before investors even consider investing in the stock again.
But can the company pull that off? It's hard to tell. Peloton's products are expensive, and that's before we add the cost of the subscription services it offers. No doubt, many people prefer to exercise from the comfort of their homes.
But some gyms have started offering hybrid membership -- that is, access to brick-and-mortar locations and online options that include live classes and one-on-one virtual coaching. That isn't good news for Peloton. The company's boom during the early days of the pandemic was because people had no choice but to stay home. That's no longer the case, and it isn't clear whether the company can remain competitive over the long run.
That's why investors shouldn't bother with Peloton's stock.
