Novavax (NVAX)

Vaccine biotechnology company Novavax (NASDAQ:NVAX) beat Wall Street’s revenue expectations in Q3 CY2025, but sales fell by 16.6% year on year to $70.45 million. The company expects the full year’s revenue to be around $1.05 billion, close to analysts’ estimates. Its non-GAAP loss of $1.25 per share was 10.5% below analysts’ consensus estimates.

Company Overview

Pioneering a nanoparticle technology that mimics the molecular structure of disease pathogens, Novavax (NASDAQ:NVAX) develops and commercializes protein-based vaccines for infectious diseases, with a primary focus on its COVID-19 vaccine and combination respiratory vaccine candidates.

Over the next few years, therapeutic companies, which develop a wide variety of treatments for diseases and disorders, face strong tailwinds from advancements in precision medicine (including the use of AI to improve hit rates) and growing demand for treatments targeting rare diseases. However, headwinds such as rising scrutiny over drug pricing, regulatory unknowns, and competition from larger, more resourced pharmaceutical companies could weigh on growth.

Novavax's competitors include major COVID-19 vaccine producers Pfizer/BioNTech (NYSE:PFE/NASDAQ:BNTX), Moderna (NASDAQ:MRNA), and Johnson & Johnson (NYSE:JNJ), as well as other vaccine developers like GSK (NYSE:GSK), Sanofi (NASDAQ:SNY), and Emergent BioSolutions (NYSE:EBS).

Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.

With just $1.06 billion in revenue over the past 12 months, Novavax is a small company in an industry where scale matters. This makes it difficult to build trust with customers because healthcare is heavily regulated, complex, and resource-intensive.

Examining a company’s long-term performance can provide clues about its quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Thankfully, Novavax’s 40.1% annualized revenue growth over the last five years was incredible. Its growth beat the average healthcare company and shows its offerings resonate with customers.

We at StockStory place the most emphasis on long-term growth, but within healthcare, a half-decade historical view may miss recent innovations or disruptive industry trends. Novavax’s recent performance shows its demand has slowed significantly as its revenue was flat over the last two years.

This quarter, Novavax’s revenue fell by 16.6% year on year to $70.45 million but beat Wall Street’s estimates by 61%.

Looking ahead, sell-side analysts expect revenue to decline by 32.1% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and suggests its products and services will face some demand challenges.

Adjusted operating margin is a key measure of profitability. Think of it as net income (the bottom line) excluding the impact of non-recurring expenses, taxes, and interest on debt - metrics less connected to business fundamentals.

Novavax’s high expenses have contributed to an average adjusted operating margin of negative 47.8% over the last five years. Unprofitable healthcare companies require extra attention because they could get caught swimming naked when the tide goes out. It’s hard to trust that the business can endure a full cycle.

On the plus side, Novavax’s adjusted operating margin rose over the last five years, as its sales growth gave it operating leverage. Zooming in on its more recent performance, we can see the company’s trajectory is intact as its margin has also increased by 88.6 percentage points on a two-year basis.

In Q3, Novavax generated a negative 253% adjusted operating margin.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Novavax’s full-year EPS flipped from negative to positive over the last five years. This is encouraging and shows it’s at a critical moment in its life.

In Q3, Novavax reported adjusted EPS of negative $1.25, down from negative $0.76 in the same quarter last year. This print missed analysts’ estimates, but we care more about long-term adjusted EPS growth than short-term movements. Over the next 12 months, Wall Street expects Novavax to perform poorly. Analysts forecast its full-year EPS of $1.78 will invert to negative negative $0.79.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

While Novavax posted positive free cash flow this quarter, the broader story hasn’t been so clean. Novavax’s demanding reinvestments have drained its resources over the last five years, putting it in a pinch and limiting its ability to return capital to investors. Its free cash flow margin averaged negative 24.8%, meaning it lit $24.76 of cash on fire for every $100 in revenue.

Taking a step back, we can see that Novavax’s margin dropped by 73.8 percentage points during that time. 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 clocked in at $105.8 million in Q3, equivalent to a 150% margin. Its cash flow turned positive after being negative in the same quarter last year

One of the best ways to mitigate bankruptcy risk is to hold more cash than debt.

Novavax is a well-capitalized company with $773.7 million of cash and $251.1 million of debt on its balance sheet. This $522.6 million net cash position is 47.9% of its market cap and gives it the freedom to borrow money, return capital to shareholders, or invest in growth initiatives. Leverage is not an issue here.

We were impressed by how significantly Novavax blew past analysts’ revenue expectations this quarter. On the other hand, its EPS missed. Zooming out, we think this was a mixed quarter. The stock remained flat at $6.69 immediately after reporting.

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Novavax.

Novavax isn’t a terrible business, but it doesn’t pass our bar. Although its revenue growth was exceptional over the last five years, it’s expected to deteriorate over the next 12 months and its cash profitability fell over the last five years. And while the company’s expanding adjusted operating margin shows the business has become more efficient, the downside is its operating margins reveal poor profitability compared to other healthcare companies.

Novavax’s forward price-to-sales ratio is 1.5x. 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.

Wall Street analysts have a consensus one-year price target of $12.78 on the company (compared to the current share price of $6.69).

Although the price target is bullish, readers should exercise caution because analysts tend to be overly optimistic. The firms they work for, often big banks, have relationships with companies that extend into fundraising, M&A advisory, and other rewarding business lines. As a result, they typically hesitate to say bad things for fear they will lose out. We at StockStory do not suffer from such conflicts of interest, so we’ll always tell it like it is.