• Novavax (NVAX) has dropped to a price that looks cheap if it manages to hit the low end of analyst earnings estimates.
• However, it’s still trading at a premium to a “worst case scenario” valuation.
• More disappointment could push it to lower prices.

The term “falling knife” may be cliché, yet it is apt to use it when describing Novavax (NASDAQ:NVAX) stock. With the delays in rolling out its Covid-19 vaccine candidate, shares have been on a steady decline for months, after experiencing a sharp drop in December and January.

Despite losing the vaccine horse race to Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE)/BioNTech (NASDAQ:BNTX), it’s not a completely hopeless situation. Although still waiting for U.S. regulatory approval, the company still has scores of vaccine supply deals overseas for its candidate Nuvaxovid.

This could enable it to report positive earnings in 2022 and 2023. Even if the company hits the low end of estimates this year and the next, you can argue the stock has fallen to a rock bottom valuation. That said, analyze the situation further. You’ll see there’s still a risk of more declines from here.

NVAX Stock and Potential Earnings

Given its underwhelming financial results so far, admittedly there may be a risk in reading too much into Novavax earnings estimates. But with the plunge in its stock price, from an all time high of nearly $320 per share in February 2021, to around $145 per share at the start of 2022, to around $50 per share today?

NVAX stock has fallen to a price where you may think it is dirt cheap, even if it only hits the low-end of what are already walked-back numbers. The lowest analyst estimates for its earnings in 2022 and 2023 are $13.08 per share and $11.15 per share, respectively. In other words, the stock trades for less than 5x this year’s earnings, and next year’s earnings.

Yes, it’s still not a given that it’ll hit these numbers. Especially the 2023 figures, considering how quickly demand for vaccines has evaporated so far this year. Yet unlike vaccine “also-rans,” like Ocugen (NASDAQ:OCGN), this contender at least could have something to show for its efforts.

Still, doesn’t mean it’ll move higher if it manages to hit this low bar. In fact, it may move lower. Today’s valuation is likely pricing-in results above the low end of estimates.

A ‘Worst Case Scenario’ Valuation for Novavax

You may think it’s mind-boggling why a stock sporting such a low earnings multiple could be at risk of falling to lower prices. However, keep in mind that potential results in 2022 and 2023 may not repeat themselves in 2024 and beyond. That is, unless it’s able to bring more of its non-Covid candidates to market.

A better way to value NVAX stock may be a method that goes beyond just a multiple of 2022 earnings. For instance, a “sum of the parts” type calculation. This entails adding up the present value of likely Nuvaxovid earnings, its current cash position, net of debt, plus a value for the rest of its pipeline.

Tabulating all of this up is more an art than a science, but we’ll give it a shot. Assuming its candidate produces earnings this year and the next gives us around $24.35 per share (15% discount for 2023 results). Add in its net cash position (around $13 per share), and that brings us up to $37.4 per share. As for its non-Covid pipeline?

Pre-pandemic (end of 2019), Novavax traded for around $4.50 per share. Add it all up, and that brings us up to around $41.90 per share.

While Seemingly Cheap, It Could Still Move Lower

In short, while perhaps cheap using the price-to-earnings (P/E) metric, it’s not in deep value territory.

At around $50 per share today, Novavax’s valuation is clearly above my low-ball estimate. Namely, the market still believes the company will generate higher earnings/have more runway with Nuvaxovid. It’s also likely placing a higher value on its non-Covid-19 pipeline. I’ll admit that, given the progress it’s made with candidates like NanoFlu, this may be justified.

However, there’s a chance the stock could slide further from here. If further results indicate earnings will fall in line with the low end of estimates? It may just well move down to my $41.90 estimate. Perhaps to lower prices, if its actual results are nowhere near the figures referenced above.

While cheap using traditional metrics, the market may still be pricing-in results for the company that may never arrive. With this, you may not want to dive into NVAX stock at today’s prices.

On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.