Novavax, Inc. (NASDAQ:NVAX) shareholders will doubtless be very grateful to see the share price up 101% in the last quarter. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. In fact, the share price has tumbled down a mountain to land 96% lower after that period. It’s true that the recent bounce could signal the company is turning over a new leaf, but we are not so sure. The million dollar question is whether the company can justify a long term recovery.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
Novavax wasn’t profitable in the last twelve months, it is unlikely we’ll see a strong correlation between its share price and its earnings per share (EPS). Arguably revenue is our next best option. Shareholders of unprofitable companies usually expect strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last five years Novavax saw its revenue shrink by 3.9% per year. While far from catastrophic that is not good. The share price fall of 47% (per year, over five years) is a stern reminder that money-losing companies are expected to grow revenue. We’re generally averse to companies with declining revenues, but we’re not alone in that. Fear of becoming a ‘bagholder’ may be keeping people away from this stock.
The company’s revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).
You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
While the broader market gained around 23% in the last year, Novavax shareholders lost 82%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 47% over the last half decade. We realise that Buffett has said investors should ‘buy when there is blood on the streets’, but we caution that investors should first be sure they are buying a high quality business. It’s always interesting to track share price performance over the longer term. But to understand Novavax better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 4 warning signs for Novavax (of which 1 is a bit concerning!) you should know about.
We will like Novavax better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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