When the world shuttered businesses and locked down in 2020, some drug companies stepped up to work on a Covid-19 vaccine. Novavax (NASDAQ:NVAX) was one of those firms. Yet, after two years, the company has yet to sell billions of dollars worth of vaccines. NVAX stock has struggled as a result.
More recently, though, Novavax has won some key approvals from health regulators. Now the company’s protein-based vaccine is the first test for investors. Strong sales in New Zealand, Israel and the U.K. might lift the stock, but its distribution in U.S. markets would be an even bigger turning point. That’s when investors will likely be rewarded.
Here’s what you should know about NVAX stock moving forward.
NVAX Stock Needs Vaccine Authorizations
On Feb. 3, Novavax announced that New Zealand granted its vaccine provisional approval. The company will supply the vaccine to the country under the name brand Nuvaxovid. In its drug trial in the U.K. involving nearly 15,000 participants, the company demonstrated the safety, tolerability and efficacy of NVX-CoV2373.
The same day, the company also noted that a U.K. regulatory agency had granted conditional marketing authorization for its vaccine. What’s more, the U.K. Vaccines Taskforce and Novavax have already announced an agreement for up to 60 million doses. However, given that the U.K. is loosening up its lockdown, the country may not order as many vaccines.
Right now, governments worldwide are reevaluating what vaccine strategy to take. Chances are good that health authorities will recommend at least an annual one-dose booster shot. Immunocompromised and high-risk individuals will also need to be protected in case another variant like delta emerges.
That’s good news for NVAX stock. But that’s not all. On Jan. 28, Israel also ordered 5 million vaccine doses from the company. The financial terms of the deal, which includes the option for an additional 5 million doses, are unknown. Investors may only speculate about the value of the contract.
When it comes to NVAX stock, investors can use a price-sales (P/S) multiple model to estimate its fair value. In the model provided, the fair value is around $120. The calculation assumes a P/S multiple of around 2 times. This is comparable to competitors like AstraZeneca (NASDAQ:AZN) and Pfizer (NYSE:PFE).
Upside Opportunity and Related Investments
According to five Wall Street analysts, the average price target for NVAX stock is almost $244. Still, investors cannot know for sure what Novavax is worth; it needs to scale production and sell to global markets first. As governments buy the vaccine, readers will be able assess its future value. It will also take at least three quarters before the company posts a profit.
That said, Novavax may announce further progress for its influenza-coronavirus combo vaccine in the year ahead. In part, demand for that product will depend on how well its current vaccine protects people.
It could prove to be a big boon for NVAX stock. Still, investing in Covid-19 vaccines may have limited upside as well. That depends on global demand in the year ahead. Countries may decide to fight the virus with antivirals moving forward. Merck (NYSE:MRK) has an oral pill, for instance. And Pfizer’s pill — called Paxlovid — may be an even better option. The U.S. Food and Drug Administration (FDA) issued an emergency use authorization for Paxlovid on Dec. 22, 2021.
Finally, Johnson & Johnson (NYSE:JNJ) is another alternative investment. The company has a DNA-based vaccine. More importantly, JNJ does not rely solely on its vaccine for revenue growth. In the fourth quarter, it posted earnings per share (EPS) of $2.13. Its revenue grew more than 10% year-over-year (YOY) to $24.8 billion.
The Risks with NVAX Stock
Unlike Johnson & Johnson, Novavax relies solely on its novel coronavirus vaccine for initial revenue. The company does not have a clear edge against competitors. People need to be averse to taking the competition’s drugs elsewhere in the world. Otherwise, Novavax’s potential addressable market is not very big.
Still, in the Stock Rover chart above, NVAX stock is trading at the bottom of its two-year valuation range. Impatient investors gave up on the biotechnology firm ahead of its global vaccine rollout.
Finally, it is true that Novavax could run into production issues. After all, this is the first time it’s making the vaccine on a large scale. The company may face unexpected operational delays or quality issues. Fortunately, though, Novavax has a competent partner like Takeda (NYSE:TAK) to make the drug. Even after Moderna (NASDAQ:MRNA) had contamination issues with its partnership in 2020, that had no impact on sales.
The Takeaway on Novavax
Investors may speculate on Novavax this year. True, the market is somewhat saturated with Pfizer, AstraZeneca and Moderna. However, there is room for another dominant player. Novavax’s sales potential will depend on people having few side effects and maximum protection from the virus.
As Covid-19 mutates, Novavax may proactively announce its plans to develop an updated vaccine. In this way, it can get ahead of other drug firms. As long as its vaccine offers more protection, people could prefer Novavax over the competition.
All told, it’s too early to speculate how things will play out. But at current prices, Novavax has upside potential. Consider a small position if you want to invest in NVAX stock. Then increase the allocation once it reports growing revenues in the quarters ahead.
On the date of publication, Chris Lau 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.
Chris Lau is a contributing author for InvestorPlace.com and numerous other financial sites. Chris has over 20 years of investing experience in the stock market and runs the Do-It-Yourself Value Investing Marketplace on Seeking Alpha. He shares his stock picks so readers get original insight that helps improve investment returns.