Novavax, Inc.'s (NASDAQ:NVAX) 35% Dip In Price Shows Sentiment Is Matching Revenues

Novavax, Inc. (NASDAQ:NVAX) shareholders won't be pleased to see that the share price has had a very rough month, dropping 35% and undoing the prior period's positive performance. Still, a bad month hasn't completely ruined the past year with the stock gaining 36%, which is great even in a bull market.

After such a large drop in price, Novavax's price-to-sales (or "P/S") ratio of 1.6x might make it look like a strong buy right now compared to the wider Biotechs industry in the United States, where around half of the companies have P/S ratios above 12x and even P/S above 72x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so limited.

See our latest analysis for Novavax

What Does Novavax's P/S Mean For Shareholders?

Novavax could be doing better as its revenue has been going backwards lately while most other companies have been seeing positive revenue growth. Perhaps the P/S remains low as investors think the prospects of strong revenue growth aren't on the horizon. So while you could say the stock is cheap, investors will be looking for improvement before they see it as good value.

Keen to find out how analysts think Novavax's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Novavax's Revenue Growth Trending?

In order to justify its P/S ratio, Novavax would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 38%. This means it has also seen a slide in revenue over the longer-term as revenue is down 16% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Shifting to the future, estimates from the five analysts covering the company suggest revenue growth is heading into negative territory, declining 17% per year over the next three years. With the industry predicted to deliver 128% growth each year, that's a disappointing outcome.

In light of this, it's understandable that Novavax's P/S would sit below the majority of other companies. However, shrinking revenues are unlikely to lead to a stable P/S over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What Does Novavax's P/S Mean For Investors?

Having almost fallen off a cliff, Novavax's share price has pulled its P/S way down as well. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Novavax's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Novavax's poor outlook justifies its low P/S ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Novavax (at least 2 which don't sit too well with us), and understanding them should be part of your investment process.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.