Investors have had a rough go of it this year, as Novavax’s (NVAX -2.47%) price has dropped by 60% so far in 2022. After a number of stumbles that culminated in its catastrophic earnings report on August 8, its shares have fallen by 60% thus far in the year. And with management cutting its full-year revenue target by about half, there is not much optimism for at least a few quarters.
For contrarian investors, that means the stock may be ready for a buy with the intention of hanging on through a recovery. Most of us, on the other hand, are not contrarians, so now might be the time to cut and run or at least put off purchasing until things improve.
Finally, here’s one reason to sell your shares and one reason for buying more.
Nuvaxovid sales have been worse than expected
The most significant reason to consider selling your Novavax stock is that its quarter 2 earnings were so far off the target that the firm issued a special separate news release to make a statement regarding its anticipated future performance in order to appease investors.
The biotech earned $186 million in revenue during the second quarter, a significant drop from the $298 million it generated in the prior-year period. According to the company’s claims, only $55 million of its income was derived from sales of its Covid-19 vaccine, Nuvaxovid, and it sold just 3 million doses—far short of the 2 billion doses it said it had manufacturing capacity for at the beginning of the year.
The issue is already on the mend, with nearly 23 million doses distributed since July. But the rest of the year appears to be a failure in any case. Management reaffirmed its 2022 sales target of between $4 billion and $5 billion for its shot in May, despite the fact that it had previously projected a margin of below 15% for the year.
Given that the revenue outlook for 2023 is expected to be lower than the previous estimate for 2022, it will certainly be entering next year against a declining demand in the vaccine market. And all of this adds up to make its stock tough to justify holding or purchasing.
Its vaccine just might have an edge
One possible explanation for why Novavax might be a good investment for the right sort of investor is that it may give significant protection against covid-19, even against some of the more immunologically evasive viral variants in omicron lineages, based on certain clinical and pre-clinical findings made in late June.
In addition, the protection appears to be long-lasting and perhaps even increases over time as a booster dose is received. However, these findings must be further validated through real-world trial data.
Novavax is working on vaccine variants that may be more effective at preventing Covid-19 infection than the current version it offers. So by the end of next year, it might have a superior product than rivals like Moderna or Pfizer, and revenue growth will continue throughout 2023 as a result. Greater vaccine efficacy could be a catalyst for investors to move ahead.
This is a stock that has suddenly become much more attractive, based on current valuations. The market may be overreacting to the bad news from the quarter 2 results. While I would not expect an immediate rally, the stock could be an appealing choice for contrarians prepared to take somewhat long odds on vaccine effectiveness determining future demand.
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