To The Moon

$Novo-Nordisk A/S(NVO)$

NVO's Shocking Decline

In my previous analysis on NVO stock, I provided insights into its performance. Today, I decided to offer another update, especially now that the stock has dropped 42% over the past year. It’s absolutely shocking for a company like NVO—one of the best-performing stocks of all time, up 58,000% historically. Yet, it’s now plunging, down nearly 50% from its all-time high.

Key Focus of This Update

In this update, I'll discuss NVO's recent performance, why the stock is declining, and whether I believe it's presenting a generational buying opportunity at $76 per share—or if it remains overvalued and we should wait for a lower price.

My View on Pharmaceutical Stocks

Personally, I’m not a huge fan of holding pharmaceutical stocks for the long term. I typically prefer them for short-term dividends or turnaround plays. The business model itself is a key reason for this. For example, Pfizer generated $52 billion in revenue in 2004, and by 2025, it’s expected to reach $62 billion—a mere $10 billion increase over 21 years. That’s incredibly slow growth, mainly due to the constant need for reinvestment in R&D to develop new drugs, products, and patents to replace expired ones. It’s a never-ending cycle.

What Makes NVO Different?

However, NVO is different. In 2004, it reported $26 billion in revenue, and now it's on track to hit $290 billion—an absolutely insane level of growth. The company has consistently expanded its revenue almost every single year, proving it has cracked the code in the pharmaceutical sector.

Market Dominance and Patent Protection

NVO is exceptionally well-managed, and many of you recognize it for its GLP-1 drugs, particularly Ozempic. The company holds a 55% market share in GLP-1s, a 43% share in insulin, and a 33% share in diabetes treatments—an impressive position. Additionally, the patent for Ozempic remains valid until 2031 in Europe and 2032 in the U.S., while several of its other major drugs won’t face patent expiration until 2032–2034.

Shareholder Returns and Dividends

NVO also prioritizes returning value to shareholders, mainly through dividends. I’m not sure why NVO occasionally does stock buybacks, but one thing is clear—they love paying dividends. They’ve aggressively grown their dividend from just $0.20 per share in 2003 to $1.26 per share today. That’s an incredible 22% annual growth rate. While the current dividend yield sits at around 2.5%, which isn’t the highest ever, it’s still solid considering the company’s impressive growth.

Profitability and Financial Strength

Beyond dividends, NVO remains an outstanding business with exceptional profitability metrics. They boast a 55% return on invested capital and a net income margin of 34%, making it one of the most efficient companies out there.

Why Is the Stock Dropping?

So, if NVO is such a fantastic company, why is the stock dropping?

As I previously mentioned, the patent for Ozempic will expire in 2031 (Europe) and 2032 (U.S.). The market is forward-looking, and so is the company, which has been working to diversify beyond Ozempic. They’ve been developing what they hope will be the next breakthrough drug, a potential successor to Ozempic. The drug, known as CagriSema, was expected to deliver significant weight loss benefits, but recent trial results have been disappointing.

The Disappointing Trial Results

Originally, NVO was targeting a 25% weight loss in trials. In a previous test, they achieved 22.7%, but in the latest trial, the figure dropped to just 15.7%. This is well below expectations and has raised concerns that NVO may struggle to find a true successor to Ozempic. If that happens, once Ozempic’s patent expires, competitors like Pfizer and other pharmaceutical companies entering the market could take significant market share, threatening NVO’s continued dominance.

Is the Market Overreacting?

That said, I believe the market is overreacting. Yes, the latest trial results were disappointing, and the company may have set expectations too high. However, NVO has a strong track record of delivering results. They still have time to refine their drug pipeline, and I trust their management team, which has proven itself time and time again.

Betting on NVO’s Long-Term Potential

While setbacks like this can shake investor confidence, I wouldn’t bet against NVO. They’ve accomplished incredible things before, and I believe they have the ability to adapt, innovate, and maintain their leadership in the pharmaceutical space.

Valuation and Risk-Reward Analysis

From a valuation perspective, I believe the risk-reward profile is compelling, especially considering that NVO’s key patents won’t expire until 2032. This provides solid visibility in the near term.

Attractive Price-to-Earnings Ratio

Looking at the price-to-earnings (P/E) ratio, the stock is currently trading at 19 times earnings. Historically, this has been a favorable buying range for NVO. The stock’s average P/E has been around 25, with past valuations reaching as high as 42 and as low as 15. Given the company’s strong net income margins, exceptional return on capital, and high-quality management, a 19x earnings multiple seems quite reasonable.

Growth Projections and Future Potential

Additionally, NVO’s earnings per share are projected to grow by 20% this year and 20% next year before slowing slightly to around 14–12% annually. If they successfully develop the next breakthrough drug to follow Ozempic, growth could reaccelerate.

A Buying Opportunity? Overall, I find the company’s fundamentals highly attractive at this valuation. At $76 per share, I believe NVO presents a strong buying opportunity.

Potential Risk: Tariffs

One potential risk is tariffs, though I’m not entirely sure how that situation will unfold. If governments decide to impose heavy tariffs or regulatory pressures on pharmaceutical companies, it could impact NVO’s financials. This remains an uncertainty, but it’s something to keep an eye on.

Conclusion

While I don’t typically invest heavily in pharmaceutical stocks for the long term, I’m taking a closer look at NVO. The more I research, the more I like what I see.

Disclaimer: I want to make it clear that I am not a financial advisor, and nothing I say is intended to be a recommendation to buy or sell any financial instrument. Additionally, it's important to remember that there are no guarantees or certainties in trading or investing, and you should never invest money that you can't afford to lose.

@Daily_Discussion @TigerPM @TigerObserver @Tiger_comments @TigerClub