Purchasing stocks after they’ve taken a substantial hit can be highly rewarding in the long term, but it’s crucial that the company has the potential to turn its situation around.
Sometimes, companies trail the broader market for valid reasons. They might not be delivering impressive financial results or their future prospects could be uncertain. Even if they appear to have hit their lowest point, these stocks tend to be avoided by investors since they probably won’t bounce back or generate strong returns.
With this in mind, let’s look at two companies which are near their 52-week lows and still don’t seem appealing: Tilray Brands and Novavax.
### 1. Tilray Brands
Being a leader in the cannabis market might sound impressive, but given the industry’s recent struggles, Tilray’s position doesn’t hold much weight. The regulatory climate is still not in favor of cannabis, especially in places like the U.S., where federal legality remains a hurdle. Even in Canada—which is more permissive—issues such as strict retail licensing, oversupply, and illegal market competition have been tough challenges for Tilray and similar companies.
Because of this, Tilray’s financial performance has been lackluster, with much of its revenue increase stemming from acquisitions, while it has yet to achieve profitability.
It’s true that Tilray has branched out. Through acquisitions, it’s become a key player in the U.S. craft brewing scene. Despite this diversification, Tilray is still banking on cannabis. CEO Irwin Simon anticipates U.S. federal legalization of recreational cannabis within the next four years. If that happens, Tilray plans to leverage its craft brewing expertise to capture the cannabis-infused beverage market.
However, even if the U.S. legalizes cannabis, that might not be enough to bolster Tilray’s prospects. Potential legalization could introduce complex regulations that complicate business operations, similar to what’s occurred in Canada. Since Canada’s legalization over six years ago, publicly-traded cannabis companies have mostly seen their values decline. Furthermore, U.S. legalization could draw in larger, more capable competitors adept in regulated markets.
While Tilray might find a profitable niche, given the uncertain legalization timeline and its track record over the last six years, there’s little optimism about its future success. Consequently, even at its current price, Tilray may not be worth the investment.
### 2. Novavax
While Novavax showed promise last year, its stock has nosedived over the past three years and is nearing its 52-week low of $3.81. Initially seen as a strong candidate in the COVID-19 vaccine race, it lagged behind Moderna and the Pfizer-BioNTech partnership. Nonetheless, Novavax secured a win last year by inking a deal with Sanofi, enabling the latter to market Novavax’s coronavirus vaccine globally.
Sanofi also obtained rights to utilize Novavax’s adjuvant technology for its vaccines under development. This arrangement brought Novavax a $500 million upfront payment, with potential milestone payments up to $700 million plus royalties.
This deal gave Novavax’s shares a boost, but the momentum didn’t last. While the agreement provided crucial funding, Novavax still needs to develop and market its own successful products. In its late-stage pipeline are standalone flu and COVID/flu combo vaccines. Regrettably, both candidates faced a regulatory challenge when the FDA temporarily halted trials due to possible severe side effects. Although the FDA later lifted these holds, the incident underscored Novavax’s high-risk nature. Regulatory and clinical setbacks could jeopardize its future.
Such risks would be less concerning if Novavax were already generating significant revenue or if its product prospects were outstanding. Yet, that isn’t the current reality. The flu vaccine market is becoming more competitive, especially with mRNA candidates that offer quicker production and potential efficacy improvements.
There’s also competition for the COVID/flu combo market. While Novavax’s candidate could excel in late-stage trials, there’s scant reason to believe it will. Failure to impress could lead to a sharp decline in its stock. At this point, Novavax doesn’t seem like an appealing biotech investment. Investors might want to avoid it.
