Novo nor** -60% Is It A Buy or Hold?

$Novo-Nordisk A/S(NVO)$

Market Volatility Continues Amid Sector Divergence

The roller coaster in the stock market continues today. While there’s plenty of red across the board, we are starting to see some green emerge, particularly among the Magnificent Seven. However, looking back over the past week, the overall market remains largely in the red—except for the healthcare sector, which has shown a touch of green.

Big Pharma Under Pressure

Zooming in on big pharma, it's been a rough ride recently. Many of the heavyweights are not only down but down significantly. AbbVie is off by 18%, Eli Lilly by 14%, and Merck by 11% over just the past week. Year-to-date doesn’t offer a much brighter picture either. While results are mixed across industries, the broader trend is still red—and that includes pharma. Eli Lilly is down nearly 10%, AbbVie 5%, and Merck a steep 22%.

Spotlight Stock: Novo Nordisk Hits New 52-Week Low

But the stock that has really caught our eye today is Novo Nordisk (NVO). The company has plummeted 52% over the past year and is down 30% year-to-date, now trading at a new 52-week low. We want to explore whether this presents a compelling buying opportunity and whether Novo Nordisk still qualifies as a high-quality long-term holding.

Valuation Signals Deep Undervaluation

Importantly, despite today’s drop, Novo is still up 120% over the past decade. Wall Street and Seeking Alpha both currently rate the stock as a Buy, and it offers a dividend yield of around 2.7%. When we examine the valuation, it looks extremely attractive: the forward P/E sits at 15.5, well below its 5-year average of 30.44—a potential sign of severe undervaluation.

Dividend Yield Theory Confirms the Opportunity

Looking at dividend yield theory, Novo also stands out. Its current yield of 2.67% is well above its 5-year average of 1.41%, marking the highest yield seen in that time. Again, this supports the case for the stock being undervalued.

A Former European Giant Facing Pressure

Novo was recently overtaken by SAP as Europe’s most valuable company, a title it held until just a few months ago. Goldman Sachs had even coined the term “GRANOLAS” to highlight European equivalents of the U.S. Mag 7—Novo Nordisk being one of them. However, recent headwinds around competitive pressures and concerns about its product pipeline have weighed heavily on the stock.

Valuation Model Confirms the Discount

From a valuation perspective, this is the cheapest Novo Nordisk has been in the past five years. Our models, both fundamental and technical, show a wide gap between the current price and even the lower range of fair value estimates.

A Safe, Growing Dividend

The dividend picture is equally compelling. The 2.67% yield isn’t just high—it’s safe, with a 99 safety score. The dividend has grown 22% in the most recent quarter, has been raised every year for 28 consecutive years, and the payout ratio is expected to drop from 73% in 2024 to 58% next year, allowing room for further increases.

Geopolitical Uncertainty Adds to Market Stress

On the geopolitical front, recent tariff exemptions had offered some relief, especially since over half of Novo’s revenue comes from the U.S., while only one-fifth of its production is located there. However, that optimism is fading. Just today, Donald Trump has threatened to remove the pharma sector’s exemption, which could lead to increased pressure if these tariffs are applied. That’s one reason we saw the stock down another 2–3% today.

Institutional Investors Still Buying

Institutional activity suggests bullish sentiment despite recent selling. Over the past year, institutions have sold $4B in shares, but bought $6.5B, indicating strong net buying. Q1 2025 saw fresh institutional inflows, and earnings also came in strong with a $28B profit versus the expected $26B, driven heavily by Wegovy and Ozempic sales—both GLP-1 drugs.

Revenue Growth Strong, Led by Obesity and Diabetes Care

Sales were up 30% YoY, led by obesity care (up 91%) and strong double-digit growth in diabetes. GLP-1 drugs like Ozempic were up 12% YoY, and although there was a 2% decline in operating margin efficiency, overall profitability remains robust.

Novo vs. Eli Lilly: Valuation Perspective

Compared to Eli Lilly, which had 45% revenue growth and larger margin expansion, Novo still looks more attractive on a valuation basis. Lilly is trading at a forward P/E of 31.2, compared to Novo’s 15.5, and even looking ahead to 2026, Novo trades at just 12.72 times earnings.

Fundamentals Support Long-Term Potential

From a fundamentals perspective, Novo is a cash-generating machine. Free cash flow per share has nearly tripled in the last decade and is projected to hit $19.13 over the next 12 months. Sales have nearly tripled since 2015, going from $108B to $290B.

Shareholder Returns: Dividends and Buybacks

They’re also rewarding shareholders through consistent share buybacks, reducing outstanding shares from 5.16B to 4.46B, and boasting a return on invested capital (ROIC) of 44%—well above our 10% benchmark.

Exceptional Margins and Balance Sheet Strength

Lastly, the company’s margins remain excellent, with operating margins above 48% and free cash flow margins at 24%. The net debt to EBITDA ratio also indicates a very strong balance sheet, reinforcing dividend safety and resilience during downturns.

Valuation & Balance Sheet Strength

We wanted to see a figure below 3, and that’s exactly what we got—2.5x on a trailing 12-month basis, with expectations for it to go even lower over the next year. This signals a very strong balance sheet, which we’ll confirm shortly. On top of that, the dividend appears very safe.

Growth Metrics: Revenue & EPS

Let’s also highlight their impressive growth: they’ve received a B+ grade, with year-over-year revenue growth of 25%, and forward-looking projections at 21%—both far above the sector average of 7–12%. Not only are they growing faster than their peers, but this is also well above their own 5-year average. So, you’re getting a company trading at a discount to its 5-year average, while growing faster in both revenue and EPS. EPS is expected to grow at 16.4% over the next 3–5 years, again above their 5-year average and ahead of the sector at 10.6%.

Valuation Discrepancy

Despite all of this, the stock is currently trading roughly in line with sector averages, while being priced nearly 50% below its own 5-year valuation multiple—suggesting you’d typically expect to pay a premium for this level of quality and performance. As we've demonstrated, they're outperforming the sector across every major metric.

Profitability & Margins

In terms of profitability, the company receives an A+ rating, with gross margins at 85%—well above both the sector at 60% and their own 5-year average of 84%. Net margin is at 35%, whereas the sector is currently losing money (around -3%), and this is slightly above their 5-year average, indicating continued improvements in efficiency.

Cash Flow Strength

Their cash flow from operations sits at $17 billion, significantly higher than the $11.3 billion average over the past 5 years. Meanwhile, the broader sector is burning through cash, with a net outflow of $3 million.

Stock Performance vs Peers

Looking at stock performance, over the past year, they’ve been the worst performer in the group—down 50%. In contrast, Eli Lilly is down around 7%. But the entire sector has faced headwinds over the past year.

5 & 10-Year Performance Comparison

Over a 5-year timeframe, the story changes—Novo Nordisk is up 118%, with Eli Lilly seeing even stronger performance at 409%. Over 10 years, Eli has surged over 1,000%, while Novo Nordisk has returned 169%. Still, we must remind ourselves: past performance is not indicative of future results, and it's always important to do your own due diligence.

Novo Nordisk vs S&P 500

Compared to the S&P 500, Novo is down 51% over the past year versus the S&P's modest 4% decline. Over 5 years, Novo Nordisk still leads with 118% gains versus the S&P's 81%. And over 10 years, Novo remains ahead at 176% vs. 143%, although the gap has narrowed in recent months.

Revenue & Net Income Growth

Revenue growth has also been impressive—rising from $16 billion ten years ago to $41 billion today. Their bottom line tells a similar story, with net income increasing from $5 billion to $14 billion—nearly tripling.

Balance Sheet Overview

Now let’s take a quick look at their balance sheet. Total cash has increased slightly—from $3 billion in 2015 to $3.7 billion today. But more importantly, total debt has risen substantially—from $156 million in 2015 to nearly $15 billion today. This is a key area to monitor. Despite this increase, their net debt-to-EBITDA remains healthy, and we continue to track this metric each quarter.

Product & Geographic Growth

Looking at the investor presentation, topline growth was 26%, supported by diverse income streams—not just GLP-1 products but also insulin, obesity care, and rare diseases. Geographically, they’re seeing double-digit growth across all major regions.

GLP-1 Segment Expansion

Their GLP-1 segment alone grew 12% year over year, and they’ve tripled global patient reach—from 58% to 63%. Interestingly, some of that growth came at the expense of Eli Lilly, whose market share declined from 38% to 34%.

Competitive Landscape with Eli Lilly

However, Lilly is growing fast with Mounjaro, while Novo’s portfolio includes Ozempic and Wegovy—both delivering strong results. Novo remains a leader in the diabetes space, with a 33.7% market share, and that grew 20% last year—a trend they expect to continue.

Setback with CagriSema

A recent setback involved their weight-loss drug CagriSema, which delivered 22.7% weight loss in trials—below the market's 25% expectation. While that led to a short-term sell-off, the long-term pipeline remains strong, with several promising assets in development across various phases.

Full-Year Financial Results

For the full year, financials were strong across the board:

• Revenue up 25%

• Gross profit up 25%

• Operating profit up 25%

• Net income up 21%

This is a company growing across all major financial lines, yet trading at a forward P/E of around 15—suggesting significant undervaluation.

Dividend & Share Repurchases

And it's worth noting: while they pay a dividend, a large portion of shareholder returns comes through buybacks. Despite no repurchase planned for 2025 (yet), we expect that to change, especially given how depressed the stock price currently is.

Forward Guidance for 2025

Looking forward to 2025, management still expects double-digit growth:

• Revenue growth between 16–24%

• Operating profit growth between 19–27%

Intrinsic Valuation Analysis

Finally, our DCF model for Novo Nordisk yields an intrinsic value of $111 per share, based on:

• 14% growth moving forward

• A 10% discount rate This implies 68% upside from today’s price.

DCF Scenarios & Margin of Safety

For full transparency:

• At 12% growth → $87 fair value → 45% upside

• At 16% growth → $116 → 93% upside

We typically apply a 10% margin of safety, and at $91, the stock still qualifies as a buy under our framework: wide moat, strong financials, and excellent growth outlook.

Even the Conservative Case Looks Strong

Even if you're more conservative:

• At 12% growth, you still get ~30% margin of safety

• At 10% growth, you’re looking at 20% MOS

Meanwhile, Wall Street’s average price target stands at $155, implying 75% upside.

Let me know—what do you think? Is Novo Nordisk a buy, hold, or sell at these levels?

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.

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