The stock of Novavax (NAS:NVAX, 30-year Financials) is estimated to be possible value trap, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $131.69 per share and the market cap of $9.8 billion, Novavax stock appears to be possible value trap. GF Value for Novavax is shown in the chart below.
The reason we think that Novavax stock might be a value trap is because
Link: These companies may deliever higher future returns at reduced risk.
It is always important to check the financial strength of a company before buying its stock. Investing in companies with poor financial strength have a higher risk of permanent loss. Looking at the cash-to-debt ratio and interest coverage is a great way to understand the financial strength of a company. Novavax has a cash-to-debt ratio of 4.34, which is worse than 78% of the companies in Biotechnology industry. The overall financial strength of Novavax is 4 out of 10, which indicates that the financial strength of Novavax is poor. This is the debt and cash of Novavax over the past years:
It is less risky to invest in profitable companies, especially those with consistent profitability over long term. A company with high profit margins is usually a safer investment than those with low profit margins. Novavax has been profitable 0 over the past 10 years. Over the past twelve months, the company had a revenue of $919.5 million and loss of $9.26 a share. Its operating margin is -65.52%, which ranks in the middle range of the companies in Biotechnology industry. Overall, the profitability of Novavax is ranked 2 out of 10, which indicates poor profitability. This is the revenue and net income of Novavax over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Novavax is 57.1%, which ranks better than 87% of the companies in Biotechnology industry. The 3-year average EBITDA growth is 14.1%, which ranks in the middle range of the companies in Biotechnology industry.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Novavax's ROIC was -101.06, while its WACC came in at 8.19. The historical ROIC vs WACC comparison of Novavax is shown below:
Overall, Novavax (NAS:NVAX, 30-year Financials) stock gives every indication of being possible value trap. The company's financial condition is poor and its profitability is poor. Its growth ranks in the middle range of the companies in Biotechnology industry. To learn more about Novavax stock, you can check out its 30-year Financials here.
To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.
