Should one invest in Novo Nordisk's stocks at this moment?
Over the past couple of years, Danish firm Novo Nordisk (NVO) (-1.53%) has evolved from a modest pharmaceutical business into what appears to be the most promising newcomer in the healthcare sector.
The company's groundbreaking work with glucagon-like peptide-1 (GLP-1) agonists gave rise to a slew of blockbuster drugs that are utilized for the treatment of diabetes and obesity. Leading its offerings are Ozempic and Wegovy.
Let me analyze Novo Nordisk's recent third-quarter financial report and delve into why its long-term strategy is looking particularly promising. We'll see if investing in the company now makes financial sense.
How did Novo Nordisk's latest earnings report fare?
During the first nine months of 2024, Novo Nordisk's revenue climbed by 24% year over year to 205 billion Danish krone (roughly $29 billion).
To provide investors with a better understanding, the company breaks down GLP-1 revenue into two categories. Through the initial nine months of the year, sales of injectable GLP-1 treatments for diabetes, such as Ozempic and Victoza, surged by 26% year over year. Furthermore, Novo Nordisk's oral GLP-1 medication Rybelsus demonstrated an impressive year-over-year growth rate of 29%.
Within the realm of obesity care, Wegovy and its sibling treatment Saxenda are shining - collectively recording a 44% year-over-year increase through September 30th.
Clearly, Novo Nordisk's GLP-1 treatments are enjoying immense success, but let's examine what these growth rates actually imply. Over the past three years, the number of patients worldwide using its GLP-1 treatments has tripled, equating to a 65% share in terms of patient volume. In comparison, its main competitor in the weight loss market, **Eli Lilly*, has an estimated 32% market share.
Without a doubt, Novo Nordisk is performing exceptionally well, and the competition is hardly a threat. Its lead may even expand further.
The long-term outlook is promising
Generic pharmaceutical companies are inclined to explore additional use cases and applications for their top-selling drugs. This is not unique to diabetes and obesity, as both conditions are often associated with other critical aspects of patient care.
As early as this year, Wegovy secured an expanded indication from the Food and Drug Administration (FDA), allowing it to be prescribed for patients with obesity who are also at risk of cardiovascular conditions such as stroke or hypertension.
Besides that, Wegovy received approval in China this year. While Novo Nordisk's revenue growth in China is a steady 10%, this region only contributes 3% to the company's international sales revenue.
Expanded indications, along with an untapped market outside of core markets in the U.S. and Europe, should provide strong tailwinds for the company. These factors are expected to further augment Wegovy's already substantial lead over Eli Lilly.
Lastly, Novo Nordisk has excelled in reinvesting its capital into additional research and development - underscored by a robust pipeline filled with promising prospects that aim to strengthen its existing GLP-1 drug portfolio.
Should you invest in Novo Nordisk stock now?
As of this writing, Novo Nordisk is trading at a forward price-to-earnings (P/E) multiple of 31.5. While this is significantly higher than the average forward P/E of the S&P 500, the trends depicted in the following chart suggest that now could be an excellent time to purchase Novo Nordisk stock:
Shares are currently trading at their lowest forward P/E multiples for the year, thanks to an extended downturn in the stock that started in the late summer. As an investor in Novo Nordisk, I'm not overly concerned about the downturn. Several months ago, the capital markets experienced significant volatility due to investors' uncertainty about the state of the economy, the outcome of the presidential election, and numerous other factors.
Now that the Federal Reserve has started to taper rates and Donald Trump has become president-elect, a significant amount of near-term uncertainty has dissipated. Nevertheless, I believe the long-term justification for investing in Novo Nordisk remains solid and apparent.
The company holds a substantial lead over its competitors. Its pipeline is filled with promising candidates that could further strengthen its existing lead, and its core growth engines of diabetes and obesity care are poised to enter fresh markets.
In my opinion, if you're an investor with a long-term perspective, now is an excellent opportunity to buy shares in Novo Nordisk. I view it as a compelling buy-and-hold stock, and I believe its best days are yet to come.
Considering Novo Nordisk's impressive growth in GLP-1 treatments and its competitive edge over competitors, carefully managing your personal finances might include exploring opportunities for investing in this company. The company's robust pipeline and expanding indications for Wegovy could potentially yield significant returns in the long term.
With the stock currently trading at a lower forward price-to-earnings multiple than its average, some financial analysts might consider this an opportune moment for investing in Novo Nordisk, given its strong fundamentals and future prospects.
