Over the last six months, Novavax shares have sunk to $8.21, producing a disappointing 7.7% loss - worse than the S&P 500’s 2.1% drop. This might have investors contemplating their next move.
Is now the time to buy Novavax, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Novavax Not Exciting?
Despite the more favorable entry price, we're cautious about Novavax. Here are three reasons we avoid NVAX and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. Novavax’s recent performance shows its demand has slowed significantly as its annualized revenue growth of 6.9% over the last two years was well below its five-year trend. 
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Novavax’s revenue to drop by 66.2%, a decrease from its 18.8% annualized growth for the past five years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
3. Free Cash Flow Margin Dropping
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Novavax’s margin dropped by 45.5 percentage points over the last five years. Almost any movement in the wrong direction is undesirable because it is already burning cash. If the trend continues, it could signal it’s becoming a more capital-intensive business. Novavax’s free cash flow margin for the trailing 12 months was negative 22.3%.
Final Judgment
Novavax’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at $8.21 per share (or a forward price-to-sales ratio of 3.5×). The market typically values companies like Novavax based on their anticipated profits for the next 12 months, but it expects the business to lose money. We also think the upside isn’t great compared to the potential downside here - there are more exciting stocks to buy. We’d recommend looking at our favorite semiconductor picks and shovels play.
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