Novavax’s Recent Consolidation Could Lead to More Gains

Investing in vaccine makers for the novel coronavirus has not been easy, but it’s been rewarding. Take Novavax (NASDAQ:NVAX) for instance. NVAX stock is up nearly 2000% from its 2020 low to its current price of roughly $130. 

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

While most people would look at that and say the run is over — or even that Novavax is now a stock to short, simply because of how much it has rallied — they are not looking at the bigger picture. 

What do I mean? The company has a real shot here with a Covid-19 vaccine. If the world has shown anything, it’s that the first vaccine maker across the supposed finish line is not necessarily the only winner. 

In fact, there are multiple vaccines already in play and in distribution, with more likely on the way. We have to remember that there are almost 8 billion people on our Earth and governments from every corner of the globe are vying for these vaccines. Plus, some experts in the medical business believe that the novel coronavirus will likely become a constant in the viral world. That means we’ll all need boosters and shots from drug makers like Novavax for years to come.

Consolidation for NVAX Stock

NVAX stock has been relatively flat since July 16 and is actually down about 4% over the last six months. Some will look at that lack of momentum and figure the stock is done. But when I look at that consolidation, frankly, I love it. 

There’s nothing better than a stock digesting a monstrous rally by trading sideways for several months. That goes for retail, high-growth tech and biotech stocks, too. When we see a huge run, it’s healthy for a stock to rest before resuming the trend. 

Now, here’s a piece of advice: stocks correct through one of two ways — time or price. 

Weekly chart of NVAX stock.
Click to Enlarge
Source: Chart courtesy of TrendSpider

The latter indicates a painful and often sharp pullback in the share price. It shakes out the weak hands and gets it over with quickly. It’s like ripping off the Band-Aid. However, the former — which is what NVAX stock is doing — is a much slower form of correction and less painful. Granted, though, one needs patience.

The chart above is a weekly view, with resistance clearly sitting near $135. If we can get a rotation over that level and weekly close above it, Novavax may be ready to rally. As we extend from the recent range, the 161.8% extension comes into play around $259. 

On the downside, the 50-week moving average may come in as support, should a deeper correction take place and the 21-week and 10-month moving averages fail to hold up as support. 

Monthly chart of NVAX stock.
Click to Enlarge
Source: Chart courtesy of TrendSpider

On the monthly chart, we have a much longer-term view. It shows that the recent high near $190 was an obvious resistance point over the prior two decades. 

However, if NVAX stock can rotate through the December high near $150, there should be very little resistance on its way to the 2020 high near $190. Interestingly enough, if shares can rally to that extension we just referenced, it will bring in multi-decade resistance between $260 and $300. 

While zooming out can make it more difficult in the day-to-day action, it can help investors see the forest for the trees. 

Breaking Down Novavax

But it’s not just about technical analysis. The truth is, Covid-19 was a devastating occurrence for the entire world and it’s going to need multiple vaccine makers to step up to the plate. 

If Novavax is one of them, it clearly has upside. If it’s not, then the stock is likely overvalued. However, Novavax is on the right path. 

In November, the company launched a Phase 3 study in the U.K., with data likely due out soon. In December, it also launched Phase 3 studies in the U.S. and Mexico. Based on current orders and a rough estimate on pricing, Novavax could be sitting on more than $5 billion in sales. 

For reference, NVAX stock has a current market capitalization of just $8.27 billion. 

Further, the company doesn’t plan on being caught flat-footed, as it’s ramping up to produce 2 billion doses a year. Should the studies go well, an Emergency Use Authorization from the FDA could get Novavax to center stage rather quickly. Additionally, the company is seeking approval in Australia as well

Consensus estimates are bound to change, so it seems foolish to even mention them. But, as it stands, analysts expect roughly $3 billion in sales in 2021, alongside $17.64 in earnings per share (EPS). 

If that comes to fruition, it would leave NVAX trading at about 7 times earnings, which would be undervalued in that scenario.

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

Matthew McCall left Wall Street to actually help investors –by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now.


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