Plenty of stocks with attractive businesses trade on the market for hundreds of dollars per share -- or more. However, it's possible to find excellent stocks that may become undervalued when either the market undergoes a deep correction, including in a bear market, or in company-specific situations where temporary problems seem to hinder the business, muddling its longer-term outlook.
One such example is Novo Nordisk(NYSE: NVO), the Denmark-based pharmaceutical leader whose shares are exchanging hands for just $60 each, and as recently as last July, traded in the mid-140s. Novo Nordisk is an outstanding business to own for this amount, even considering the recent issues it has faced.
Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »
And here's the kicker: Despite earnings per share (EPS) growing more that 150% over the last five years, the stock is trading at just 19 times its trailing 12-month earnings.
Novo Nordisk's challenges
Many pharmaceutical companies focus on developing medicines in one or a few areas. There are advantages to specialization. Drugmakers often become experts, thanks to this kind of laser focus, and the many successes and failures they face while creating therapies in their chosen field of expertise. There can also be disadvantages in overreliance on a single therapeutic area, and Novo Nordisk has long focused on endocrine-related disorders.
It has been a leader in the diabetes drug market for decades, and is now also a major player in weight management. However, the company is heavily reliant on this field. In 2024, Novo Nordisk's revenue increased by 25% year over year to 290.4 billion Danish kroner ($44.6 billion). Sales of its diabetes and obesity products totaled 271.8 billion DKK ($41.8 billion), almost 94% of its top line.
Here's the problem: There's mounting competition in the diabetes and obesity markets. Novo Nordisk should be able to fend off most of it, with a pipeline that is second to none -- or almost none. The drugmaker's longtime rival in diabetes, Eli Lilly, might be catching up. Lilly recently reported positive results from a phase 3 clinical trial of orforglipron, an oral GLP-1 medicine that could be a game changer.
Meanwhile, Novo Nordisk's latest data readout from a phase 3 clinical trial was disappointing. It was for an investigational GLP-1 drug called CagriSema, and although it performed well, it wasn't quite as impressive as investors and analysts had hoped.
Financial results last year also fell short of the high expectations placed on the company. Furthermore, Novo Nordisk is dealing with marketwide issues like practically everyone else. Fortunately, there are reasons to be optimistic.
Look beyond the headwinds
Novo Nordisk's stock is dropping because the company has not met expectations, with either its financial results or its pipeline. But at some point, it will be down enough that the share price will accurately reflect the company's value. After a drop of 51% over the trailing-12-month period, we might be at that point. Novo Nordisk's forward price-to-earnings (P/E) ratio is now a modest 14.6, while the average for the healthcare industry is 15.7:
Though it looks like Eli Lilly is pulling ahead of Novo Nordisk in key markets, the latter has not yet had its last word. Novo Nordisk recently decided to seek approval for an oral version of Wegovy, its famous weight loss drug. This oral formulation of semaglutide, the active ingredient in Wegovy, reported positive phase 3 results in 2023. Novo Nordisk is now moving ahead with a regulatory submission.
Approval here should help the company fend off the threat from Lilly's orforglipron. Note that even as more rivals join this market, considering that it will grow rapidly in the coming years, there should more than enough space for multiple winners. Novo Nordisk still has an incredibly deep pipeline in the field, with several GLP-1 medicines, including oral formulations, at all stages of clinical trials.
Moreover, Novo Nordisk has been looking to diversify its lineup. It's developing products across several areas, including some with high unmet needs, such as Alzheimer's disease. These programs won't all pan out, but the company should still launch new products in diabetes, weight management, and other areas.
Novo Nordisk should also continue growing its revenue and earnings faster than most of its peers, while maintaining a solid dividend program. At just $60 per share, the stock appears attractive for long-term investors.
Should you invest $1,000 in Novo Nordisk right now?
Before you buy stock in Novo Nordisk, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Novo Nordisk wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004... if you invested $1,000 at the time of our recommendation,you’d have $566,035!* Or when Nvidiamade this list on April 15, 2005... if you invested $1,000 at the time of our recommendation,you’d have $629,519!*
Now, it’s worth notingStock Advisor’s total average return is829% — a market-crushing outperformance compared to155%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
