In the wake of substantial growth, Novo Nordisk's stock price has climbed to near-peak levels, with investors asking whether the stock is now hovering in overvalued territory. Euronews Business takes a closer look at Europe's most valuable company.
As Novo Nordisk celebrates a century since its inception, the Danish pharmaceutical titan not only commemorates its storied past but also its present status as Europe's largest company by market capitalisation, having dethroned the luxury colossus LVMH Moët Hennessy Louis Vuitton in 2023.
What has been the catalyst for this remarkable elevation? Well, it comes down to a surging demand for its weight-loss medications.
A centennial celebration with record highs
In 2023, Novo Nordisk's shares soared to record highs, potentially concluding the year with an unprecedented near 50% growth, continuing a five-year bullish streak.
The question on many minds is whether the exponential growth witnessed by Novo Nordisk will continue into 2024 and beyond.
Novo Nordisk’s revenue forecasts: Continued prosperity?
Looking ahead, the company’s revenue projections for 2023 stand at DKK 229 billion (€30.7 billion), a 30% jump from the previous year and double the sales achieved five years earlier.
This upward trajectory is forecast to persist with revenues anticipated to reach DKK 279 billion (€37.4 billion) in 2024, escalating to DKK 374 billion (€43.7 billion) by 2026.
The driving force behind these numbers will continue to rely on the diabetes and obesity care segment, which has experienced an 82% surge in sales for the first nine months of the year.
The star of Novo Nordisk's portfolio, Wegovy, harnesses semaglutide to effectively manage obesity. This medication, a 'GLP-1 receptor agonist,' is a game-changer in appetite regulation and has been authorised for marketing in the European Union since January 2022. Clinical studies underscore its efficacy, with subjects achieving an impressive 15% weight reduction over a 68-week period.
As per a recent analysis conducted by Peterson-KFF, a monthly dosage of Wegovy at the maintenance level costs $1,349 in the United States, while it is priced at $328 in Germany and $296 in the Netherlands.
A massive market demands effective solutions
With more than 750 million people worldwide living with obesity, which is responsible for 5% of global deaths according to the World Health Organisation, there is an immense demand for weight-loss medications. Novo Nordisk is scaling up its manufacturing presence across Europe, investing in existing facilities to increase Wegovy's production in order to satisfy an immense market need.
The anti-obesity medication sector has seen rapid growth, with current valuations at $6 billion and projections by Goldman Sachs Research estimating the potential to balloon to $100 billion by 2030. Novo Nordisk, in tandem with Eli Lilly, is expected to dominate this market, potentially controlling 80% of it by the end of the decade.
In the US alone, with an expected 13% penetration rate among eligible adults, the customer base for such medications could reach 15 million by 2030.
Is Novo Nordisk's stock price expensive?
In the wake of substantial growth, Novo Nordisk's stock price has climbed to near-peak levels, with investors asking whether the stock is now hovering in overvalued territory.
A critical valuation measure is the forward Price-to-Earnings (P/E) ratio, that compared the current stock price with the 1-year projected earnings, which for Novo Nordisk stands at 31.
This figure may appear lofty, particularly when it is twice the average multiple of its industry peers, save for Eli Lilly, which commands an even higher valuation.
Yet, a retrospective look at Novo Nordisk's performance over the past three years shows that the current forward P/E ratio is consistent with its historical trend. Moreover, a broader perspective using the price-to-estimated three-year earnings metric moderates the multiple to 26, suggesting more compelling valuations.
As Novo Nordisk enters 2024, it does so with a strong commitment to expanding its production capabilities and maintaining a cutting-edge portfolio. The global obesity epidemic presents a substantial market opportunity for the company's suite of weight management products.
While the question of whether its stock is overvalued remains a point of debate among investors, Novo Nordisk appears to have secured a dominant position within the pharmaceutical industry.