Uncertain Market Conditions And Good News Make Novavax A Cautious Buy

Last week Novavax (NASDAQ:NVAX) received an emergency use authorization (EUA) for its Covid-19 vaccine candidate in Australia. That news catalyst subsequently pushed NVAX stock approximately 6% higher.

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

However, the negative market sentiment weighing down the market proved too much to overcome. As the week ended, the stock had lost all of those gains, ending close to a 52-week low. This is the latest episode in a continual “yeah, but” narrative that has plagued NVAX stock over the past year

The company has received EUAs in more than 30 countries. But it remains unsuccessful at getting approval in the United States.

Novavax’s vaccine features recombinant nanoparticle technology which is distinctly different from the mRNA vaccines available from Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX) and Moderna (NASDAQ:MRNA).

But this is the first vaccine the company has successfully brought to market since it came into existence in 1987. And although NVAX stock looks oversold by conventional metrics such as the relative strength indicator (RSI), the recent market sell-off is particularly focused on risk-on assets such as biotech stocks.

That makes it more difficult to call a bottom on Novavax stock.

One Small Step Is Not A Giant Leap For NVAX Stock

With the addition of Australia, Novavax’s Covid-19 vaccine is now available in over 30 countries. The company is targeting developing countries where vaccine rates remain low. This is a sound strategy because it gives the company significant revenue opportunity.

Writing for InvestorPlace, Larry Ramer estimates Novavax could see annual revenue in the $3 billion to $4 billion range. That would be welcome news to investors because in the last two quarters, the company’s revenue is moving in the wrong direction.

However, this strategy also means the company is all but giving up on making a significant dent into developed countries, most notably the United States. To be fair, the number of individuals getting the virus, even among those who have already been vaccinated, is rising.

But even if the virus moves to an endemic stage, it is likely that a Covid-19 “booster” shot will be a yearly occurrence at least for the most vulnerable population. That leads me to my next question.

Can Novavax Overcome Vaccine Hesitancy?

There is a school of thought that the reason why vaccination rates remain low is because people are concerned about the unknowns regarding the mRNA vaccines currently available. And the Johnson & Johnson (NYSE:JNJ) vaccine, while not an mRNA vaccine seems to have its own issues.

This would seem to create an opportunity for Novavax to carve out a niche. And that niche could get larger as the CDC has now suggested that previously vaccinated individuals can “mix and match” for subsequent stocks.

That’s all well and good. But remember, this is the first time Novavax has brought a vaccine to market. It’s every bit as experimental as an mRNA vaccine. And if millions of the currently vaccinated, who may now also have natural immunity, decide that three shots is enough thank you that could lower the addressable market for Novavax.

How Much Growth is Already Factored In? 

The market feels very different than it did just a few weeks ago. And NVAX stock is up 985% from where it closed on January 24, 2020. The company has something now that it didn’t have then. But is that growth already priced into the stock?

On January 21, 2022, analyst firm Cowen initiated coverage on NVAX stock with a $150 price target. That’s the first analyst to weigh in on the stock since the company received its latest EUA. That suggests meaningful revenue is on the way. If so, then it’s likely that Novavax will be moving higher. But when?

Buy NVAX Stock, Cautiously 

Let me be clear, Novavax should be seeing significant revenue gains in the next year. It’s just difficult to know how much that gain will be. And even putting all that aside, investors may have to wait to wring out the volatility.

I think Novavax is oversold. But I also don’t believe it’s that oversold. I’m willing to wait until the company next reports earnings before making a decision one way or the other. 

On the date of publication, Chris Markoch did not have (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.

Chris Markoch is a freelance financial copywriter who has been covering the market for eight years. He has been writing for InvestorPlace since 2019.

Article printed from InvestorPlace Media, https://investorplace.com/2022/01/uncertain-market-conditions-and-good-news-make-novavax-a-cautious-buy/.

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