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NVO Stock Loses Around $29B in 3 Months: Buy the Dip or Steer Clear?
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Novo Nordisk (NVO - Free Report) shares have lost 5% in the past three months, which translates to approximately $29 billion in market value, against the industry’s growth of 2.6%. NVO has also underperformed in the sector and the S&P 500 in the past three months, as seen in the chart below.
NVO Stock Underperforms the Industry, Sector & the S&P 500
Image Source: Zacks Investment Research
The dip in the stock price was primarily observed after the company faced a major setback in July when the FDA rejected its regulatory filing seeking approval for its once-weekly insulin called Awiqli in the United States. Awiqli is currently approved in the EU, Canada, Australia, Japan and China for type I diabetes.
The decline in the stock price was further aggravated by the company’s lower-than-expected second-quarter results, which missed both earnings and revenue estimates, despite Diabetes and Obesity care product sales increasing year over year. Consequently, Novo Nordisk lowered its guidance for operating profit growth for 2024.
However, short-term stock performance, such as over the past three months, holds less significance for long-term investors. Instead, the emphasis should be on the company's solid fundamentals. Shares of Novo Nordisk have skyrocketed more than 400% in the past five years and the company boasts a market cap of nearly $600 billion.
Novo Nordisk, a leader in the worldwide diabetes and obesity care market, has been witnessing stellar performance of its GLP-1 agonist, semaglutide, which is approved as an Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes (T2D) and as Wegovy injection for weight management. Semaglutide has been the key driver of Novo Nordisk’s stupendous growth in the past few years.
Let’s dig deeper into the factors governing the company’s prospects to understand how to play the stock after the recent price drop.
NVO’s Growing Sales and Margins
Novo Nordisk has one of the broadest diabetes portfolios in the industry.The company improved its global diabetes value market share in 2023 from 31.9% to 33.8%, primarily due to market share gains in both North America and International operations.In 2023, Novo Nordisk’s GLP-1 sales in diabetes jumped 52%.
In the past five years, total revenues generated by the company surged 90.3% on a reported basis.In 2023, the company reported a net profit margin of 36%, which is the highest recorded in the past five years. During the same period, NVO’s net profit margin remained above 31%, showing consistency.
Semaglutide - NVO’s Growth Engine
Novo Nordisk continues to be the global market leader in the GLP-1 segment with around 54% value market share, primarily on the back of its semaglutide medicines.
Wegovy is the key top-line contributor for Novo Nordisk. Despite supply challenges, Wegovy is seeing strong prescription trends and is generating impressive revenues and profits. The company is investing heavily to ramp up its production capacity to meet the growing demand. Ozempic sales are also contributing to the top line.
Wegovy’s label was expanded in the United States in March 2024 to reduce the risk of serious heart problems in obese/overweight adults, which has been boosting its sales. The drug’s label was also recently expanded in the EU for the same indication. The company is also looking to expand the drug’s label to treat patients with obesity-related heart failure with preserved ejection fraction in the EU and U.S. markets.
However, Novo Nordisk faces serious competition from Eli Lilly (LLY - Free Report) in this market space. Lilly has seen unparalleled success with tirzepatide, a dual GIP and GLP-1 receptor agonist, which is marketed as Mounjaro for T2D and Zepbound for obesity. While other biotech firms, such as Amgen (AMGN - Free Report) and Viking Therapeutics (VKTX - Free Report) , are also making rapid progress with their GLP-1-based diabetes/obesity candidates, we believe that they will take time to catch up with NVO.
NVO’s Diversification Plans to Treat Other Indications
Novo Nordisk is actively exploring additional uses for semaglutide, including evaluating Wegovy for heart failure in diabetes and obesity patients, and Ozempic as a treatment for T2D and chronic kidney disease. The company is also studying semaglutide for nonalcoholic steatohepatitis. These efforts could expand the eligible patient base for the drug, pending approval. An Oxford study also showed that semaglutide may reduce cognitive issues and nicotine misuse, suggesting potential for treating brain disorders.
Beyond diabetes and obesity, Novo Nordisk is diversifying its portfolio by developing Mim8 for hemophilia A, with plans to submit it for regulatory approval by the end of 2024.
NVO’s Premium Valuation, Declining Estimates
Novo Nordisk is trading at a premium to the industry, as seen in the chart below. Going by the price/earnings ratio, the company’s shares currently trade at 33.79 forward earnings, which is more than 19.76 for the industry.
NVO Stock Valuation
Image Source: Zacks Investment Research
Earnings estimates for 2024 have declined from $3.33 to $3.11 per share over the past 60 days. During the same time frame, Novo Nordisk’s 2025 earnings estimates have decreased from $4.35 to $4.34 per share. The declining estimates are most likely due to the guidance cut announced by the company on its second-quarter conference call.
NVO Estimate Movement
Image Source: Zacks Investment Research
The stock’s return on equity on a trailing 12-month basis is 87.43%, which is higher than 28.44% for the large drugmaker industry, as seen in the chart below.
NVO Return on Equity
Image Source: Zacks Investment Research
How to Play NVO Stock?
Novo Nordisk, currently carrying a Zacks Rank #3 (Hold), has immensely boosted shareholder value in the past five years. Despite recent challenges like the Awiqli setback and an operating profit guidance cut for 2024, the company's expanding market share and revenue growth signal strong long-term potential, driven by sales of Wegovy and Ozempic. Though not as successful as its arch-rival, Lilly, yet, NVO is heavily investing in manufacturing to meet the rising demand for Wegovy. The updated sales outlook for 2024 indicates higher full-year expectations for both North America and International operating units.
Furthermore, the company is looking to expand the indications for Wegovy and Ozempic to increase patient eligibility, which, if approved, would further boost revenues. Novo Nordisk is also developing new obesity treatments to stay competitive, especially in the U.S. market, which holds significant growth potential.
Thus, we can conclude that the temporary decline in the stock price should not bother long-term investors. In fact, such opportunities make for a lucrative entry point for potential new investors. Investors who already own the stock should continue to hold it for long-term gains.
Image: Shutterstock
NVO Stock Loses Around $29B in 3 Months: Buy the Dip or Steer Clear?
Novo Nordisk (NVO - Free Report) shares have lost 5% in the past three months, which translates to approximately $29 billion in market value, against the industry’s growth of 2.6%. NVO has also underperformed in the sector and the S&P 500 in the past three months, as seen in the chart below.
NVO Stock Underperforms the Industry, Sector & the S&P 500
The dip in the stock price was primarily observed after the company faced a major setback in July when the FDA rejected its regulatory filing seeking approval for its once-weekly insulin called Awiqli in the United States. Awiqli is currently approved in the EU, Canada, Australia, Japan and China for type I diabetes.
The decline in the stock price was further aggravated by the company’s lower-than-expected second-quarter results, which missed both earnings and revenue estimates, despite Diabetes and Obesity care product sales increasing year over year. Consequently, Novo Nordisk lowered its guidance for operating profit growth for 2024.
However, short-term stock performance, such as over the past three months, holds less significance for long-term investors. Instead, the emphasis should be on the company's solid fundamentals. Shares of Novo Nordisk have skyrocketed more than 400% in the past five years and the company boasts a market cap of nearly $600 billion.
Novo Nordisk, a leader in the worldwide diabetes and obesity care market, has been witnessing stellar performance of its GLP-1 agonist, semaglutide, which is approved as an Ozempic pre-filled pen and Rybelsus oral tablet for type II diabetes (T2D) and as Wegovy injection for weight management. Semaglutide has been the key driver of Novo Nordisk’s stupendous growth in the past few years.
Let’s dig deeper into the factors governing the company’s prospects to understand how to play the stock after the recent price drop.
NVO’s Growing Sales and Margins
Novo Nordisk has one of the broadest diabetes portfolios in the industry.The company improved its global diabetes value market share in 2023 from 31.9% to 33.8%, primarily due to market share gains in both North America and International operations.In 2023, Novo Nordisk’s GLP-1 sales in diabetes jumped 52%.
In the past five years, total revenues generated by the company surged 90.3% on a reported basis.In 2023, the company reported a net profit margin of 36%, which is the highest recorded in the past five years. During the same period, NVO’s net profit margin remained above 31%, showing consistency.
Semaglutide - NVO’s Growth Engine
Novo Nordisk continues to be the global market leader in the GLP-1 segment with around 54% value market share, primarily on the back of its semaglutide medicines.
Wegovy is the key top-line contributor for Novo Nordisk. Despite supply challenges, Wegovy is seeing strong prescription trends and is generating impressive revenues and profits. The company is investing heavily to ramp up its production capacity to meet the growing demand. Ozempic sales are also contributing to the top line.
Wegovy’s label was expanded in the United States in March 2024 to reduce the risk of serious heart problems in obese/overweight adults, which has been boosting its sales. The drug’s label was also recently expanded in the EU for the same indication. The company is also looking to expand the drug’s label to treat patients with obesity-related heart failure with preserved ejection fraction in the EU and U.S. markets.
However, Novo Nordisk faces serious competition from Eli Lilly (LLY - Free Report) in this market space. Lilly has seen unparalleled success with tirzepatide, a dual GIP and GLP-1 receptor agonist, which is marketed as Mounjaro for T2D and Zepbound for obesity. While other biotech firms, such as Amgen (AMGN - Free Report) and Viking Therapeutics (VKTX - Free Report) , are also making rapid progress with their GLP-1-based diabetes/obesity candidates, we believe that they will take time to catch up with NVO.
NVO’s Diversification Plans to Treat Other Indications
Novo Nordisk is actively exploring additional uses for semaglutide, including evaluating Wegovy for heart failure in diabetes and obesity patients, and Ozempic as a treatment for T2D and chronic kidney disease. The company is also studying semaglutide for nonalcoholic steatohepatitis. These efforts could expand the eligible patient base for the drug, pending approval. An Oxford study also showed that semaglutide may reduce cognitive issues and nicotine misuse, suggesting potential for treating brain disorders.
Beyond diabetes and obesity, Novo Nordisk is diversifying its portfolio by developing Mim8 for hemophilia A, with plans to submit it for regulatory approval by the end of 2024.
NVO’s Premium Valuation, Declining Estimates
Novo Nordisk is trading at a premium to the industry, as seen in the chart below. Going by the price/earnings ratio, the company’s shares currently trade at 33.79 forward earnings, which is more than 19.76 for the industry.
NVO Stock Valuation
Earnings estimates for 2024 have declined from $3.33 to $3.11 per share over the past 60 days. During the same time frame, Novo Nordisk’s 2025 earnings estimates have decreased from $4.35 to $4.34 per share. The declining estimates are most likely due to the guidance cut announced by the company on its second-quarter conference call.
NVO Estimate Movement
The stock’s return on equity on a trailing 12-month basis is 87.43%, which is higher than 28.44% for the large drugmaker industry, as seen in the chart below.
NVO Return on Equity
How to Play NVO Stock?
Novo Nordisk, currently carrying a Zacks Rank #3 (Hold), has immensely boosted shareholder value in the past five years. Despite recent challenges like the Awiqli setback and an operating profit guidance cut for 2024, the company's expanding market share and revenue growth signal strong long-term potential, driven by sales of Wegovy and Ozempic. Though not as successful as its arch-rival, Lilly, yet, NVO is heavily investing in manufacturing to meet the rising demand for Wegovy. The updated sales outlook for 2024 indicates higher full-year expectations for both North America and International operating units.
Furthermore, the company is looking to expand the indications for Wegovy and Ozempic to increase patient eligibility, which, if approved, would further boost revenues. Novo Nordisk is also developing new obesity treatments to stay competitive, especially in the U.S. market, which holds significant growth potential.
Thus, we can conclude that the temporary decline in the stock price should not bother long-term investors. In fact, such opportunities make for a lucrative entry point for potential new investors. Investors who already own the stock should continue to hold it for long-term gains.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.