Investor Essentials Daily

Novavax had a critical inflection while developing a COVID vaccine

March 8, 2022

A number of pharmaceutical companies have given their shot at a coronavirus vaccine. This company has spent the last year pouring money into research to design one of its own.

But even as it begins to make money off of its COVID initiatives, it still has a low valuation.

That’s why this showed up on our FA Alpha Screen. Its strong profitability, high growth, and attractive valuations make it a compelling company. 

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There are very few industries out there where one product can make a company worth billions of dollars.

There are a handful of tech companies that have done so. Look at Apple (AAPL), which pushed valuations to impressive levels on just the iPhone, and Generac (GNRC), which has been able to build a business largely just by making generators.

Likewise, the pharmaceutical industry is a business where a single blockbuster product can transform a business.

Novavax (NVAX) is a great example of this. It’s a biotechnology company that has developed experimental vaccines over the years, including ones for Ebola, the flu, and a number of other serious infectious diseases.

Most recently, Novavax worked diligently to develop a coronavirus vaccine. It has poured money into research and development (“R&D”) to design a COVID-19 vaccine that takes a different approach. The Novavax vaccine contains the spike protein so the patient’s immune system can produce antibodies against it.

Over the past two years, governments around the world have been investing into Novavax, in the hope the company’s labs and technicians are able to further combat COVID-19 and prevent an epidemic from disrupting daily life.

As the company has started being able to monetize all of its research efforts, one would expect Novavax to be in the midst of a profitability inflection.

Yet as-reported metrics, distorted by how they account for the company’s research and development investment, show that in 2020, the company still had negative return on assets (“ROA”). In 2020, ROA sat at -30%.

However, Uniform Accounting allows us to see a different picture.

By using Uniform metrics, we see that ROA actually inflected positively from -12% to 15%, with impressive growth as Novavax plowed government funds and its own money into innovation.

Now, ROA is forecast to continue to rise higher, with 2021 expectations coming in at 20% and 2022 expectations rocketing to 87%.

So as Novavax continues to innovate with its new vaccine, we can expect strong profitability and performance. 

But you can only see this impressive performance if you look at the right Uniform Accounting data.

As-reported metrics hide the company’s transformation, which explains why Novavax trades well below a 10x Uniform P/E.

But this low valuation, combined with high returns and strong growth is what makes Novavax such a compelling company, and is why it is such an interesting FA Alpha 50 name.

Throughout financial market history, many of the world’s most successful investors have been candid in their belief that Generally Accepted Accounting Principles (“GAAP”) distort economic reality.

Warren Buffett, for example, once said investors should “concentrate on the world of companies, not arcane accounting mathematics.”

Investors who neglect the very real issues with as-reported accounting can find themselves caught up investing with the crowd, blindly following hot “themes” without a thorough grasp of how to understand the businesses in question.

The only true way to focus on the “world of companies,” as Buffett suggests investors do, is to present a clear picture of how a business operates, something that can only be done by adjusting financial statements to reflect the arbitrary nature of certain accounting rules that leave much to discretion.

The world’s best investors understand the need to make these adjustments, which allows them to focus not on picking out the most popular companies, but rather looking for great names in sleepy areas that the market isn’t paying much attention to. From there, the goal is to then identify quality companies with significant growth potential at reasonable prices.

That’s exactly what we’ve set out to do with the FA Alpha, our monthly list of 50 companies that rank at the top for quality, high growth, and low valuations.

This list has outperformed the market by 300 basis points per year for over 20 years now, effectively doubling the performance of the market by focusing on the real fundamentals and valuations of companies with our proprietary Uniform Accounting framework.

See for yourself below.

If you’re interested in seeing the other 49 names on this month’s FA Alpha, click
here to learn more.

Best regards,


Joel Litman & Rob Spivey

Chief Investment Strategist &
Director of Research 
at Valens Research

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