Down 75% From Its High, Has Novavax Stock Become Too Cheap to Pass Up?

Novavax (NVAX 0.01%) is facing some significant headwinds. Its financials aren't in great shape, and its future remains questionable. Investors have been dumping the stock in droves, and it is no longer near the highs it reached toward the start of the year. But with the stock trading at a deep discount to its rivals, has it become so cheap that it's worth taking a chance on Novavax?

The stock's valuation is incredibly low

Novavax trades at a price-to-sales multiple of well below 1. It's remarkably cheap when compared to fellow COVID-19 vaccine makers Pfizer and Moderna.

NVAX PS Ratio data by YCharts

Investors are discounting Novavax to a fairly high degree. Moderna has a broad pipeline that goes beyond COVID, but it isn't nearly as diverse as rival Pfizer, and yet it's trading at a higher revenue multiple. Novavax's valuation appears almost punitive -- but there's good reason.

Why investors aren't bullish on Novavax

There are multiple reasons why investors haven't been buying up shares of Novavax despite its low valuation:

• The company raised going-concern issues earlier this year, suggesting that it may not be able to survive due to its poor financials. Over the six-month period ended June 30, the company reported revenue of $505 million. But with operating expenses totaling more than $762 million, Novavax has struggled with profitability. Although it reported a profit last quarter, that was an anomaly, and it isn't likely to be the start of a new pattern. Over the past two quarters, it has also burned through $498 million over the course of its day-to-day operating activities.
• Its pipeline is relatively thin, with Novavax primarily focused on COVID and flu vaccines, including a combination of the two.
• Demand for COVID shots is lower than expected, with rival Pfizer recently lowering its forecast. That doesn't bode well for Novavax, which doesn't have other products to rely on.

As a result of the troubling outlook for the company, shares of Novavax have fallen 36% this year, and it's nowhere near its 52-week high of $25.66. A lot ultimately depends on how the company performs next year, and with demand for COVID shots diminishing, that isn't resulting in rosy expectations for the business.

Short selling is rampant

Another troubling development for the healthcare stock is that an increasing number of people are betting on Novavax to fail. Short interest as a percentage of float is now more than 50%:

NVAX Percent of Float Short data by YCharts

There are many reasons to be bearish on the stock, and there's little surprise that short sellers are effectively expecting the business' struggles to get worse. And if more short sellers pile on, that could put even more downward pressure on this already badly beaten-down stock.

Is Novavax a stock worth taking a chance on?

Unfortunately, there simply isn't an overwhelming reason to buy Novavax's stock right now. This is a highly volatile investment that may only be suitable for speculators at this point, rather than investors. Without stronger financials and a path for more growth ahead, the business appears in trouble, and so this is a stock that investors are better off avoiding.