Up 3x In A Week Will Novavax Stock Continue To See Higher Levels?

NVAX: Novavax logo
NVAX
Novavax

The stock price of Novavax (NASDAQ: NVAX), a Covid-19 vaccine developer, trades at $13 per share, about 96% below its peak level of $320 seen in February 2021. NVAX stock was trading at around $51 in early June 2022, just before the Fed started increasing rates, and is now 75% below that level, compared to a substantial 40% gain for the S&P 500 during this period. Our detailed analysis of Novavax’s upside post-inflation shock captures trends in the company’s stock during the turbulent market conditions seen over 2022. It compares these trends to the stock’s performance during the 2008 recession.

Novavax stock has been weighed down in recent years due to a significant decline in Covid-19 vaccine demand. Early last year, it wasn’t sure if the company would survive. However, amid a recent development, Sanofi signed a licensing deal with Novavax, to commercialize the latter’s Covid-19 vaccine globally (except for a few countries) and use Novavax’s technology to develop new vaccine products. The deal is valued at $1.2 billion, giving Novavax a much-needed support. NVAX stock has surged nearly 200% in a week, following this development.

But looking at a slightly longer term, NVAX stock has suffered a sharp decline of 90% from levels of $110 in early January 2021 to around $13 now, vs. an increase of about 40% for the S&P 500 over this roughly three-year period. However, the decrease in NVAX stock has been far from consistent. Returns for the stock were 28% in 2021, -93% in 2022, and -53% in 2023. In comparison, returns for the S&P 500 have been 27% in 2021, -19% in 2022, and 24% in 2023 — indicating that NVAX underperformed the S&P in 2022 and 2023.

In fact, consistently beating the S&P 500 — in good times and bad — has been difficult over recent years for individual stocks; for heavyweights in the Health Care sector including LLY, UNH, and JNJ, and even for the megacap stars GOOG, TSLA, and MSFT. In contrast, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has outperformed the S&P 500 each year over the same period. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.

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Given the current uncertain macroeconomic environment with high oil prices and elevated interest rates, could NVAX face a similar situation as it did in 2022 and 2023 and underperform the S&P over the next 12 months — or will it see a recovery? The $18 average of analysts’ price estimates reflects over 35% upside from the current market price of $13. The higher price target likely accounts for royalties that Sanofi is expected to pay Novavax for the sales of its vaccines. The upside could be even higher if Sanofi successfully develops new products using Matrix-M adjuvant, resulting in higher royalties for Novavax. With some cash cushion, Novavax should be able to focus on in-house development of new products as well.

2022 Inflation Shock
Timeline of Inflation Shock So Far:

  • 2020 – early 2021: Increase in money supply to cushion the impact of lockdowns led to high demand for goods; producers unable to match up.
  • Early 2021: Shipping snarls and worker shortages from the coronavirus pandemic continue to hurt supply.
  • April 2021: Inflation rates cross 4% and increase rapidly.
  • Early 2022: Energy and food prices spike due to the Russian invasion of Ukraine. Fed begins its rate hike process.
  • June 2022: Inflation levels peak at 9% – the highest level in 40 years. The S&P 500 index declined more than 20% from peak levels.
  • July – September 2022: Fed hikes interest rates aggressively – resulting in an initial recovery in the S&P 500 followed by another sharp decline.
  • October 2022 – July 2023: Fed continues rate hike process; improving market sentiments helps S&P500 recoup some of its losses.
  • Since August 2023: Fed has kept interest rates unchanged to quell fears of a recession, and it is prepared for rate cuts in 2024.

In contrast, here’s how NVAX stock and the broader market performed during the 2007/2008 crisis.

Timeline of 2007-08 Crisis

  • 10/1/2007: Approximate pre-crisis peak in S&P 500 index
  • 9/1/2008 – 10/1/2008: Accelerated market decline corresponding to Lehman bankruptcy filing (9/15/08)
  • 3/1/2009: Approximate bottoming out of S&P 500 index
  • 12/31/2009: Initial recovery to levels before accelerated decline (around 9/1/2008)

Novavax and S&P 500 Performance During 2007-08 Crisis

NVAX stock declined from $73 in September 2007, the pre-crisis peak, to $16 in March 2009, as the markets bottomed out, implying it lost 78% of its pre-crisis value. It recovered sharply to $53 levels in early 2010, reflecting a stellar 3x growth between March 2009 and January 2010. The S&P 500 Index saw a decline of 51%, falling from levels of 1,540 in September 2007 to 757 in March 2009. It then rallied 48% between March 2009 and January 2010 to reach levels of 1,124.

Novavax’s Fundamentals Over Recent Years

Novavax’s revenue increased from $22 million in 2020 to $1.6 billion in 2022, led by an uptick in its Covid-19 vaccine, but fell thereafter to $556 million in 2023. The company is currently developing a Covid-influenza combination vaccine. Novavax’s loss per share stood at $4.40 in 2023, versus a loss per share of $6.36 in 2020.

Does Novavax Have A Sufficient Cash Cushion To Meet Its Obligations Through The Ongoing Inflation Shock?

Novavax’s total debt decreased from $468 million in 2020 to $229 million now, while its cash decreased from $711 million to $481 million over the same period. However, the company incurred $714 million in cash flows from operations in 2023. With a negative cash flow from operations, the company isn’t in a great position to meet its near-term obligations. That said, its recent deal with Sanofi will surely help improve its financial position.

Conclusion

With the Fed’s efforts to tame runaway inflation rates helping market sentiments, we believe NVAX stock has the potential for more gains once fears of a potential recession are allayed. While its top-line is expected to benefit from the recent Sanofi deal and provide a boost to its stock, it is unlikely to see the levels it was trading at in 2021, anytime soon.

While NVAX stock can see higher levels, it is helpful to see how Novavax’s Peers fare on metrics that matter. You will find other valuable comparisons for companies across industries at Peer Comparisons.

Returns May 2024
MTD [1]
2024
YTD [1]
2017-24
Total [2]
 NVAX Return 198% 169% -49%
 S&P 500 Return 5% 11% 137%
 Trefis Reinforced Value Portfolio 6% 6% 653%

[1] Returns as of 5/16/2024
[2] Cumulative total returns since the end of 2016

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