Novavax (NVAX 3.54%) has gone from a pandemic darling to a bust, with its shares falling by a whopping 83% over the past 12 months. The hope and optimism surrounding the stock has faded. Earlier this month, the company reported a surprise profit, briefly creating some bullishness around the business. But that result isn't indicative of the company's future, and investors should be careful not to buy the stock based on that result.
Why the results are a bit misleading
On Aug. 8, Novavax reported a positive earnings result for the second quarter. Revenue of $424.4 million for the period ending June 30 was more than double the $185.9 million the company reported in the prior-year period. The boost in revenue was enough to cover its operating expenses of $369 million, leaving just over $58 million in profit for the healthcare company. Profits have been few and far between for Novavax, even as it has generated revenue from its COVID vaccine.
NVAX Net Income (Quarterly) data by YCharts
But the company's Q2 earnings were a bit inflated, as Novavax reported some revenue during the period that would otherwise have been in the third quarter or later. As a result, there will be minimal sales next quarter, with management noting that it won't get word from the U.S. Food and Drug Administration (FDA) about whether its new COVID shot will obtain approval until late September.
Investors should brace for losses
With minimal sales for Q3, the company is likely to post a significant loss during the quarter. Beyond that, there's risk for the losses to continue. Even if its updated COVID shot obtains FDA approval, demand may not be strong with the economy going largely back to normal and COVID no longer being a significant concern for many people. Plus, with the U.S. government no longer loading up on the shots, there is no shortage of uncertainty surrounding how much revenue Novavax may be able to generate in future agreements, and whether the revenue it brings in will be enough to cover its operating expenses.
Going concern remains an issue
Earlier this year, Novavax warned investors that it may not be able to continue on as a business given the risks that it faces. And last quarter's results didn't change that prospect. Although the company has reduced its current liabilities, they remain significantly higher than its current assets.
NVAX Total Current Assets (Quarterly) data by YCharts
This can be an acceptable situation for a company that is constantly generating money and bringing in cash, but that may not be the case for Novavax. With plenty of doubt surrounding how much the business may generate in sales over the next 12 months, it may have a hard time paying obligations as they come due. The risk for dilution is high as the company may need to issue shares to strengthen its financial position.
Novavax isn't worth investing in
Novavax doesn't have enough in its pipeline to make up for a sizable decline in COVID-related revenue. Its flu vaccine, Nanoflu, may generate less than $500 million in revenue at its peak. Without a big growth catalyst to count on, investors are left with a largely speculative investment in Novavax.
This is a highly volatile stock with a beta value of around 1.7, indicating that shares of Novavax move wildly and more erratically than the markets. Although the company is coming off a good quarterly report, that is likely to be an anomaly rather than the norm moving forward. Investors are better off avoiding the stock, as owning it could put your portfolio on a bumpy ride.
