Novavax (NASDAQ:NVAX) stock has had a rough time in the last several months. As I wrote last week, investors have been growing anxious — or let’s say, impatient — for the company to receive emergency use approval (EUA) from the Food and Drug Administration (FDA) for its Covid-19 vaccine. As a result, NVAX stock is down a great deal since its peak on Sept. 7, when it hit $270.58 per share.
As of Jan. 19, the stock has drifted down to $92.33 per share. That puts its decline at $178.25 per share, or 65.9% from the peak on Sept. 7.
Moreover, NVAX stock ended 2021 at $143.07. So since the end of 2021, Novavax is down 35.5%. These are miserable returns for a company that has a market capitalization of $8.38 billion.
This is what happens when the market gets anxious about delays for a company receiving FDA approval. However, investors would do best to consider that it also means the stock is very undervalued. Let’s look at this situation more closely.
Where This Leaves Novavax Stock
I think the best way to view this situation is to assume the FDA will eventually grant the EUA. As a result, NVAX stock will react accordingly and likely rise to a point where it has a similar, if not higher comparable value to other vaccine stocks.
For example, at its present market value, NVAX stock trades for 3.47 times forward earnings in 2022 and 1.51 times 2022 forecast sales. This is according to a survey by Seeking Alpha of 5 analysts and their average earnings and sales forecasts.
But this is cheap compared to some of its vaccine peers. For example, Moderna (NASDAQ:MRNA) trades at a forward price-to-earnings (P/E) multiple of 6.16 times, according to the average forecast of 15 analysts in a survey by Seeking Alpha. That is 77.5% higher than the 3.47 times multiple at NVAX stock.
The same thing is apparent with price-to-sales (P/S) multiple comparisons. For example, Moderna trades for 3.4 times revenue. This is 2.26 times the 1.51 P/S multiple at Novavax (i.e., it’s 126% higher.)
Therefore, the average of these two metrics is 101.75%. We can call it 100%, or a double from here. In other words, NVAX stock is worth twice its present price.
Where This Leaves Investors in NVAX Stock
Just to be conservative, let’s assume it takes two years for all this to work out. So if NVAX stock doubles to $184.66 per share at the end of two years, the average annual return is 41.42%.
For those of you who want to know the math behind this: Take 2 and raise it to the power of 1/2, then subtract 1 (i.e., [2.0^0.5]-1 =0.4142.)
So, during each of the next two years, investors in NVAX have a reasonably good chance of making profits of more than 41%. Let’s put some odds on those chances.
For example, let’s assume investors are still skittish about the chances for the company in the first year, even though it may receive FDA approval. So let’s say there is a two-thirds chance that it makes 41.42% in the first year. That produces an expected return (ER) of 27.6% in the first year (i.e., 0.6667 x 0.4142.) That puts its first-year price target at $117.81 (i.e., 1.276 x $92.93.)
Let’s then assume there is a 95% chance the stock makes the second year expected return of 41.42%. That produces a gain of 39.3%. So based on its first-year price target, at the end of year two, NVAX stock will be at $164.11 per share.
This means, on a risk-adjusted basis, NVAX stock is worth 77% more than its price today. This is gives us a price target of $164.11 based on its Jan. 19 price of $92.33. That is a very good expected return for most investors.
On the date of publication, Mark R. Hake did not hold any position (either directly or indirectly) 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.
