Ever heard of Novavax (NASDAQ:NVAX) before? Don’t kick yourself if you haven’t … NVAX stock had a market capitalization of just $815 million, making it a small-cap biotech stock. That market cap got even smaller on Thursday — falling to about $320 million. If anything, the rout in Novavax stock highlights the myriad reasons investors avoid small-cap stocks.
There are a few reasons for this, the most notable of which is simply awareness. Let’s face it, it’s a lot easier to invest in companies and concepts that we are already aware of.
Products and services from companies like Apple (NASDAQ:AAPL), Twitter (NYSE:TWTR) and Johnson & Johnson (NYSE:JNJ) all stand out because, even if we don’t use them, we know what an iPhone, Twitter and Tylenol are.
The other reasons for avoiding small caps are more investment-related. Simply put, small-cap stocks tend to be more volatile, inferior financials to their large- and mega-cap counterparts. What’s more, they typically offer little to no dividend … As a result, that takes small caps — or at least individual stock ownership in small caps — off the table for many risk-averse investors. Finally, there’s a lot less research and coverage on these little guys.
That’s what makes it hard to invest in something like NVAX stock, particularly if you’ve never heard of it before …
Trading Novavax Stock
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Before we dive into the charts, let’s hammer home a few points.
First, remember what we just said about individual small-cap stocks: They can be extremely volatile. That’s not to say that a large-cap dividend giant like Kraft Heinz (NYSE:KHC) can’t be volatile (it can), but it’s something that needs to be reiterated considering this is a biotech firm.
Second, there’s a lot less volume in names like NVAX stock. That can make getting fills harder and pour fuel on the fire when it comes to volatility, so it’s worth mentioning it. Okay, now on to the charts.
Shares are plunging in Thursday morning trade, down 65%, after the company said it failed to meet the endpoints of a Phase 3 clinical trial for its ResVax treatment. Above is a four-year weekly chart, which shows Novavax drifting higher over the past few years. That is, until Thursday.
The stock opened below $1 per share, but before that, NVAX had been putting in higher lows and lower highs. Meaning that it was tightening its range and setting up for a large move one way or the other. Well, now we know which way that will break.
Because we’re dealing with a small-cap biotech stock, investors needed to be aware that the stock could move 20%, 30%, 50% or more on a big catalyst. So what now? With a Phase 3 failure hovering over NVAX, bulls won’t have much reason to plow into this name. Look to see if its multi-year lows near 70 cents hold up, and on the upside, look to see if Novavax can get above $1.
The Bottom Line on NVAX Stock
Investors were definitely feeling optimistic on Novavax stock, considering its momentum following the positive results for its Phase 2 study with NanoFlu. The hope was that the company would do well with this trial, too, allowing its share price to catapult higher.
Instead, the treatment failed to “sufficiently separate from placebo as measured by the incidence of RSV lower respiratory tract infection (LRTI) through 90 days of life, the primary endpoint.”
As of the company’s most recent results, NVAX stock holds $144.7 million in cash, while long-term debt has held steady around $318 million. Remember, that’s about in line with the company’s current market cap.
Some investors are holding out hope that that the trial results barely missed the endpoints. That may be true and give NVAX another shot down the road. But the stock price doesn’t lie, and right now, it’s telling a cautionary tale. Investors should heed that warning as well.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long AAPL.
