During May and June, Novavax (NASDAQ:NVAX) shares appeared to be making a major comeback. At the time, news of a partnership deal with pharma firm Sanofi (NASDAQ:SNY), as well as another positive development, were driving Novavax stock “to the moon.”
Since then, however, NVAX has given back a fair chunk of its late spring gains. At one point trading for as much as $23.86 per share, the stock has pulled back to $12.50 per share. Those who dove in during the height of the latest hype are sitting underwater. Even after this sell-off, further declines appear likely as sentiment keeps shifting back towards bearish.
Nevertheless, you may not necessarily want to throw your shares into the toss pile just yet. Even as investors went overboard with the “Sanofi surge,” I wouldn’t discount the potential for another needle-moving move higher for shares down the road.
There’s Renewed Hesitancy About Novavax Stock
Covid-19 put Novavax on the map but it never really hit the big time when it came to capitalizing on global vaccination demand resulting from the pandemic.
Given this mixed track record, it makes sense that investors have again become hesitant to buy and hold Novavax stock. In the eyes of the market, the various positive developments hinted above are now fully priced into shares, perhaps overly so. For instance, there is a potential upside from the Sanofi deal that is worth as much as $1.4 billion.
Even after NVAX’s pullback, shares remain up nearly threefold compared to just before this deal announcement. That’s not all. The market also believes the potential commercial upside from Novavax’s Covid variant vaccines is overly accounted for as well.
During late May and early June, the Novavax rally kicked off by the Sanofi news persisted. That is mostly due to investors speculating that Novavax’s JN.1-focused vaccine will be in high demand this fall. Although investors have already “sold on the news” since the Food and Drug Administration (FDA) recommended a JN.1-focused vaccine for this year, given that NVAX remains at elevated levels compared to prior months, this catalyst is perhaps somewhat still baked-in.
There’s Still Potential for Another Breakthrough
With Novavax stock trading at levels, the market is saying there is no upside left, only downside. Does this mean you should stay away? Not quite. In the near term, bearishness about NVAX could drive the stock down further, at least temporarily.
Maybe not back to penny stock levels but perhaps to around $10 per share. As Novavax probably wouldn’t be undervalued at that level, it could still be a worthwhile entry point for biotech investors with a high-risk appetite. Why?
Although the $1.4 billion cash infusion from the Sanofi deal and the JN.1 catalyst could be fully accounted for at $10 per share, these aren’t the only possible boosters out there. For one, there’s potential for Novavax and Sanofi to co-develop a combination Covid-19/flu vaccine. Success in this area could produce another big financial win for Novavax.
Also, note that Sanofi is only getting a non-exclusive license to utilize Novavax’s Matrix-M adjuvant vaccine technology. This allows Novavax to develop other products using this technology, whether alone or in partnership with another pharma firm. Progress with these or other potential catalysts could drive another surge for NVAX down the road.
The Verdict: A Speculative Buy on Further Weakness
Don’t get me wrong. There’s no need to run out and bet the ranch on Novavax. While less overvalued and overhyped than the bears suggest, NVAX remains a high-risk stock.
There’s tremendous downside risk if none of the additional potential catalysts come to fruition. In the event this happens, a full trip back to sub-$5 per share prices is very likely.
However, moderate success in these areas, which are currently unexpected by the market, would undoubtedly lead to another turbo-charged rally for shares. This means there’s merit in making this stock a speculative buy.
At least upon further weakness. Hence, keep Novavax stock on your watchlist as a continued slide back toward $10 per share or less will put shares back into the buy zone.
On the date of publication, Thomas Niel did not hold (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.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
