Novavax (NASDAQ:NVAX) — a biotech company with a Covid-19 vaccine candidate — released its third-quarter earnings on Nov. 4. Now, NVAX stock looks to be too cheap on a forward earnings multiple basis.
For example, based on five analysts’ average estimates for 2022, one Seeking Alpha survey shows NVAX is very cheap. Trading at $169.30 per share on Nov. 9 at the time of this writing, the stock trades for just 6.18 times forward earnings.
This seems way too cheap, especially since the company is close to getting U.S. Food and Drug Administration (FDA) approval for its Covid-19 vaccine. In the earnings release, Novavax indicated that it expects to submit the complete regulatory package to the FDA by the end of the year (Page 15).
Meanwhile, the company has already received Emergency Use Approval (EUA) from Indonesia, in conjunction with the Serum Institute of India (SII). This will allows the company to start earning revenue via vaccine sales. Additionally, Novavax has had multiple regulatory submissions abroad, including in the U.K., Australia, India, Canada, New Zealand and to the World Health Organization (WHO) for emergency use approval (EUA).
No doubt, some of these countries could be waiting on the FDA’s decision before they act, although the company will probably not admit that. That makes its U.S. submission very important still. Assuming the vaccine gets approved early next year, though, Novavax’s fortunes could turn around fairly quickly.
NVAX Stock: The Bad News and the Good
The bad news here is that Novavax is still losing money. For the quarter, it posted a net loss of $322 million, or $4.31 per share. However, the good news is that the company is producing revenue. In Q3, Novavax had about $179 million in sales, up from $157 million in the prior-year period.
On top of this, NVAX has plenty of cash on its balance sheet as well. That will allow it to withstand cash burn until its vaccine is approved around the world. As of Sept. 30, it had $1.9 billion in cash, cash equivalents and restricted cash.
The fact also remains that, once its vaccine is put into circulation, analysts are predicting revenue will skyrocket. For example, in 2022, analysts estimate sales will hit $4.83 billion, up from the $1.4 billion forecast for 2021.
In fact, Novavax has already produced $1.2 billion in sales in the trailing 12 months. In the first nine months of 2020, it made just $195.9 million.
Further, 2022 sales will also be greater than double the 2021 total. This should make Novavax very profitable. Analysts estimate earnings per share (EPS) of $27.40 in 2022, $18.98 in 2023 and $24.58 in 2024 for NVAX stock. The average of these three figures is $23.65. Further, the 2023 and 2024 forecast EPS estimates are lower given the likelihood that there will be less demand for its ongoing Covid-19 vaccine.
What NVAX Stock Is Worth
Trading for 6.18 times earnings for 2022 and 8.92 times for 2023 seems too cheap. The out-year forecast for 2024 implies that it trades for 6.89 times. Therefore, the average for all three forecast years price-earnings (P/E) multiples is just 7.33 times.
By comparison, Moderna (NASDAQ:MRNA) trades for 8.95 times 2021 earnings, 20.48 times 2023 and 50.26 times 2024 earnings forecast. The average of these three P/E estimates is 26.56 times.
Obviously, there is a wide gulf between Novavax’s average 7.33 times multiple for the next three years and Moderna’s 26.56 times multiple. Even if we used one-half of the MRNA average multiple — or 13.28 times earnings — then NVAX stock should be worth 85.5% higher than today’s price.
That would put NVAX stock on a price target of $314.07 per share. If this happens over the next year, that will be a roughly 85% return on investment (ROI) for investors, a very good return. In fact, even if Novavax receives EUA approval everywhere else in the world but not the U.S., the stock is still likely to have a very good return.
On the date of publication, Mark R. Hake did not own (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and runs the Total Yield Value Guide which you can review here.