The Market Doesn't Like What It Sees From Novavax, Inc.'s (NASDAQ:NVAX) Revenues Yet As Shares Tumble 28%

Novavax, Inc. (NASDAQ:NVAX) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. Looking at the bigger picture, even after this poor month the stock is up 32% in the last year.

Since its price has dipped substantially, Novavax's price-to-sales (or "P/S") ratio of 1.4x 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 8.3x and even P/S above 46x are quite common. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

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Check out our latest analysis for Novavax

How Novavax Has Been Performing

While the industry has experienced revenue growth lately, Novavax's revenue has gone into reverse gear, which is not great. The P/S ratio is probably low because investors think this poor revenue performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Novavax.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

The only time you'd be truly comfortable seeing a P/S as depressed as Novavax's is when the company's growth is on track to lag the industry decidedly.

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 31%. As a result, revenue from three years ago have also fallen 40% overall. Therefore, it's fair to say the revenue growth recently has been undesirable for the company.

Turning to the outlook, the next three years should bring diminished returns, with revenue decreasing 22% each year as estimated by the seven analysts watching the company. That's not great when the rest of the industry is expected to grow by 148% per year.

With this information, we are not surprised that Novavax is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

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

Shares in Novavax have plummeted and its P/S has followed suit. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Novavax's analyst forecasts revealed that its outlook for shrinking revenue is contributing to its low P/S. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It is also worth noting that we have found 2 warning signs for Novavax (1 doesn't sit too well with us!) that you need to take into consideration.

If you're unsure about the strength of Novavax's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.