Shares of drugmaker Novo Nordisk (NVO) sold off sharply last week, falling as much as 29% intraday Friday (before closing down 17%) and wiping out nearly $100B of market value in the process when the company reported clinical data for its next-generation obesity drug, CagriSema, that came in short of expectations.
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While the results were a bit disappointing, I view the selloff as an overreaction that has created a golden opportunity to pick up shares of this long-term winner at a discount.
I’m bullish on Novo Nordisk based on its suddenly appealing valuation, consistent track record as a dividend stock, and long-term history of outperforming the market. For patient investors, this could be the chance you’ve been waiting for to add this blue-chip name to your portfolio.
What Happened?
Novo Nordisk’s GLP-1 drugs, Wegovy and Ozempic, helped propel the stock to new heights in recent years. This new class of weight loss drugs from Novo Nordisk and competitors like Eli Lilly (LLY) took both the market and the general public by storm.
While Wegovy and Ozempic have been smash hits, competition continues to mount for what experts believe can eventually grow to a $100 billion market annually. Therefore, it’s no surprise that Novo Nordisk has been working on its next-generation successor, CagriSema. This product combines semaglutide, the main ingredient from Ozempic and Wegovy, with a new ingredient called cagrilintide. Novo Nordisk just released phase 3 results for CagriSema, and many analysts and investors were disappointed with the data.
While the once-weekly injectable led to 22.7% weight loss over 68 weeks, it fell short of the company’s prior target of 25%. On the other hand, the results are an improvement upon Wegovy’s 17% weight loss and roughly on par with the 23% of competitor Eli Lilly’s FDA-approved Zepbound (though it should be noted that many hoped that the results would put CagriSema squarely ahead of Zepbound, which factored into the disappointment).
However, not all hope is lost. As stated above, the results mean CagriSema is at least competitive with Zepbound. Plus, Novo Nordisk isn’t done yet – it will release the results of another long-term trial for CagriSema, this time involving adults with type 2 diabetes and excess weight, in early 2025, which could change the narrative if the results impress.
Is Novo Nordisk Now a Value Stock?
Novo Nordisk isn’t quite what you’d call a textbook value stock, but it’s no longer particularly expensive.
Novo Nordisk’s valuation became frothy last year when GLP-1 hype reached a fever pitch. However, shares are down more than 40% from their 52-week high. After Friday’s selloff, Novo Nordisk trades at just 22.2 times 2025 earnings estimates, meaning it is slightly cheaper than the broader market, with the S&P 500 (SPX) trading at 24.5 times earnings.
For a long-term winner who has traded at an above-market multiple in recent years, this could be a rare opportunity to acquire shares of the long-term winner at a relative discount.
Consistent Dividend Stock
Novo Nordisk is also a dividend stock. While its forward dividend yield of 1.7% might not seem particularly exciting to income investors, it’s slightly above the S&P 500’s current yield of 1.3% and a nice bonus for long-term investors, as it helps to increase total returns over time.
Plus, Novo Nordisk has a stellar track record of dividend consistency. The Danish company has paid out dividends to its shareholders for an impressive 42 years in a row without interruption. No only that, but Novo Nordisk has also grown its payout for the past five years in a row, and has done so at a rapid compound growth rate (CAGR) of 18.7% over this time frame.
Lastly, the company’s dividend looks well-covered with a payout ratio of under 50%.
Novo Nordisk Is a Long-term Winner
Despite the recent setback, Novo Nordisk is a long-term winner. In fact, the stock has delivered a total return of nearly 340% over the past 10 years, including the selloff. This strong total return trumps that of the broader market; the Vanguard S&P 500 ETF (VOO) has delivered a total return of just over 240% over the past decade. This long history of outperforming the market over many years gives me confidence that Novo Nordisk can bounce back from this setback and return to its winning ways.
Is NVO Stock a Buy, According to Analysts?
Turning to Wall Street, NOVO earns a Moderate Buy consensus rating based on four Buys, three Holds, and zero Sell rating assigned in the past three months. The average NVO stock price target of $147.80 implies a 73.88% downside potential from current levels.
Selloff Looks Overdone
While the CagriSema results came short of expectations, the one-day selloff that saw the company shed $100 billion in value seems like an overreaction. It creates the rare opportunity to buy this long-term winner at a fairly inexpensive valuation, which could be a winning proposition for long-term investors.
I’m bullish on Novo Nordisk based on its suddenly inexpensive valuation, strong track record as a dividend stock, and long-term history of generating strong returns for its shareholders. These factors mean this may only be a temporary setback for an otherwise great stock.
