Take Advantage of Investor Impatience with Novavax

Good investors are patient. The “quick buck” is almost always illusory. But more than that, good investors take advantage of impatience elsewhere. Right now, Novavax (NASDAQ:NVAX) provides precisely that kind of opportunity — traders are getting restless with NVAX stock.

Novavax (NVAX) logo surrounded by medical supplies
Source: Ascannio/Shutterstock.com

After all, it has struggled lately. The name cleared $180 in early August but touched below $80 in November. Now, the sharp rally has faltered again. At this point, Novavax is off some 39.5% from its 52-week high of $189.40.

The catalyst appears to be the company’s standing in the Covid-19 vaccine race. Other competitors have presented some strong data and candidates. Meanwhile, NVAX’s late-stage trial has been delayed for a second time.

In the past, I’ve detailed my faith in Novavax’s vaccine potential. Each of the candidates being developed has pluses and minuses, but Novavax’s “subunit” approach looks particularly attractive.

To be sure, this is biotech investing, where nothing is for certain. Regardless, at this point, the natures of the respective candidates are well-known. We’re all simply waiting for the results.

So, this go around, I’d like to focus on the trading in NVAX stock itself — and why this pullback looks like an opportunity.

What’s Changed with NVAX Stock?

At first glance, it might seem like the pullback in NVAX stock makes some sense. Simply put, it appears that the biotech’s rivals are moving faster.

To some extent, that might be true. This company isn’t likely to be first to the finish line. But I’m not sure that matters much.

After all, no reasonable investor should have thought that the Covid-19 vaccine race would end in a “winner-take-all” scenario. Demand both in the U.S. and worldwide will be massive. And within that demand will be different needs. Novavax, for instance, seems like it will be best-suited for patients with pre-existing conditions.

More importantly, though, nothing has happened so far that’s much of a surprise. Competing vaccine developers have largely met their timelines. Novavax has seen delays, but as one analyst put it, they’re “not meaningful.” The issue is not the efficacy of the vaccine, but getting the manufacturing process down pat. Plus, it’s only the U.S. trial that has been delayed — a large-scale trial in the United Kingdom is on track and should deliver results in the first quarter of next year.

We’re talking a matter of weeks in an effort that is going to last for years. And in this effort, first isn’t necessarily best. So, the news so far really shouldn’t have much — if any — bearing on NVAX stock.

Is Novavax Too Expensive?

All told, if investors are selling this stock right now, I think that’s a mistake. But that might not be the only reason for the selling.

Another reason could be that the stock seems too expensive, despite the huge potential in the vaccine market. Even after the pullback, Novavax has a market capitalization of $7.3 billion. NVAX stock has rallied a staggering almost 2,800% so far this year.

But investors should have learned by now that the size of the past rally does not necessarily determine the stock’s ability to rally in the future. NVAX should have posted a massive rally, but the opportunity in front of it simply didn’t exist on Jan. 1.

Now, as far as valuation goes, reasonable investors can see the stock very differently. Fair value doesn’t depend on the company developing a successful vaccine alone. We don’t know what pricing will be. We don’t even know how often vaccines will be required. Some scientists now believe that the novel coronavirus will become endemic. In that scenario, shots would be as common as — or maybe more common than — the flu shot.

That said, $7.3 billion still looks easily reasonable. For what it’s worth, Wall Street expects more than $14 in earnings per share (EPS) next year alone. Vaccine demand won’t dry up for some time. And Novavax still has other efforts in its pipeline.

It’s impossible to argue definitively that NVAX stock is cheap. But it’s close to impossible to definitely argue the opposite, too.

Risk and Reward

I’ve said it before and I’ll say it again — investors shouldn’t buy NVAX stock with money they can’t afford to lose. Biotech companies go bust every week. It’s not because their employees aren’t smart, or because their management is poor. It’s because drug development is an inherently difficult, risky process full of unknowns.

But successful investors in the space look for situations where the rewards far outweigh the risks. I’ve long thought NVAX meets that criteria. The company has an intriguing candidate in what will be a massive market. Competition will be stiff, but the space is large enough for multiple winners.

Now, that doesn’t mean Novavax will be the biggest winner of the vaccine developers, or even a winner at all. But it has as good a chance as anyone. And investors with just a little patience now can own the stock at an even cheaper price — likely because others aren’t willing to wait just a few more weeks.

On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in the article.

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