Recently, biotechnology company Novavax, Inc. (NASDAQ: NVAX) has experienced some large price swings based on changing fundamentals. Let’s take a closer look at this stock and see if it presents a buying opportunity.
On July 25th, Novavax shares plummeted from around $1.50 to $1.15, representing a roughly 24% drop. The company published positive data on its phase 2 RSV-F vaccine. RSV, or respiratory syncytial virus, is a widespread and contagious respiratory infection that affects many children. There is no vaccine for this virus currently. About 64 million children suffer from respiratory infection due to RSV each year. In addition, the disease claims 160,000 lives annually.
The plummet likely occurred due to skeptical press and investors. A previous phase 3 study did not show a significant ability to prevent RSV infections in over 11,000 adults. This news has many investors cautious, and ready to sell in light of any bad press.
Should the RSV-F vaccine ever make it to the market, it could represent billions of dollars in profits, considering there is no other available vaccine. The disease is also the most common cause of respiratory infection in children. The current market cap of NVAX is only 280 million, so investors should expect large returns if the vaccine is approved by the FDA. The current share price is about 850% lower than its 52 week high of $8.49.
Aside from the vaccine pipeline, the company’s financials are decent for a clinical stage biotech company. In Q2 of 2017, the company reported a loss of 44.5 million, or -$0.16 EPS. Although this is a loss, the company reported a larger loss of 79.4 million, or -$0.29 EPS in Q2 of 2016. This indicates that revenue losses are diminishing over time. The revenue increase was driven by a financial grant awarded by Bill and Melinda Gates. The company is sitting on 211 million in cash, which should buy them some time to gather more positive results, and increase funding.
The company’s CEO, Stanley C. Erck, has experience leading publicly traded biotech companies. From 2000 to 2008, he served as CEO of IOMAI corporation, and led them through their initial public offering. IOMAI was eventually acquired by vaccine company Intercell. An acquisition of Novavax would prove profitable for any investors holding stock. There is no doubt here that Mr. Erck has experience, and can hopefully pull off something similar with Novavax.
That wraps up the fundamentals of the company, now let’s look at at technicals. As of 8/29/2017, the RSI of NVAX sits at 25. RSI, or relative strength index, is a momentum oscillator. In short, RSI can be used to predict where the price of a stock will go next. Typically, a stock is considered oversold when the RSI is below 30. At the current value of 25, the RSI for Novavax indicates a bullish trend. Additionally, Novavax has a 20% short float. This means that about 20% of the shares available for trading are being short sold. Short sellers are people betting that the stock will go down. While this may sound bad for the stock, it can trigger a short squeeze. A short squeeze occurs when a stock rises, and short sellers are forced to close their positions. To close their positions, they must buy the stock. This influx of buyers drives the stock price even higher than it would’ve risen otherwise.
As with all clinical stage biotech companies, investors should be cautious. Although I am overall bullish on Novavax, it is a volatile stock, and money can be made or lost very quickly. Ultimately, if you can stomach any potential losses in the short term, I believe that Novavax could turn out to be a very profitable investment for traders.
Disclosure: I have no positions in NVAX, nor do I intend to initiate a position in the near future.
