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Danish pharma large Novo Nordisk (NYSE:NVO) has been on an absolute tear in 2024. The shares have rocketed over 40% previously 12 months, making it one of many hottest tickets within the inventory market. The corporate has set buyers’ pulses racing with its blockbuster weight reduction medicine Wegovy and Ozempic, which have proven they’re doubtlessly the actual deal.
However after such a stellar run, I reckon the shares may have to loosen their belt a notch. Right here’s why I’m not dashing to gobble up any of the shares at present costs.
Bloated valuation?
The shares now sport a price-to-earnings (P/E) ratio of round 46 instances, which is decidedly chunkier than the common P/E of about 15 instances for its friends. The inventory’s price-to-sales (P/S) ratio of 15.7 instances can also be tipping the scales. These multiples recommend the market has already baked in a hefty serving of future development. This makes me nervous after such a wholesome rally, since any disappointment or errors may result in a serious decline.
So whereas current efficiency has been nothing in need of mouth-watering, with earnings bulking up by 33.7% over the previous 12 months, maintaining this tempo could be a tall order. Analysts expect earnings development to slim right down to about 14% yearly over the approaching years. That’s nonetheless a wholesome determine, however maybe not sufficient to justify the premium price ticket.
Provide and regulatory challenges
One other restrict to near-term development is provide constraints for its common GLP-1 medicine. Whereas this overwhelming demand is definitely a pleasant downside to have, it has pressured administration to place launches in some worldwide markets on the backburner.
Checking out these manufacturing bottlenecks will take time and a wholesome injection of capital. In the meantime, opponents like Eli Lilly are racing to carry new weight reduction surprise medicine to the desk, doubtlessly taking a chew out of the first-mover benefit.
As weight problems and diabetes remedies achieve extra customers, they’re additionally attracting extra consideration from regulators. Throughout the pond, Medicare is gearing as much as begin haggling over costs, which may hit revenue margins in a serious market.
There are additionally ongoing research poking and prodding at potential unwanted effects of GLP-1 medicine. Whereas the drugs have confirmed to be secure in scientific trials, any whiff of security issues may put a serious dampener on the get together.
One other concern is that some insiders have been cashing of their chips not too long ago. The corporate’s books present an worker consultant director offloaded about £1.1m value of inventory in mid-August. Whereas insider gross sales don’t imply the sky is falling, they’re value chewing over once they occur after such a hearty run-up.
One to observe
Regardless of these potential near-term hiccups, I reckon the agency’s long-term outlook stays as tasty as ever. The worldwide weight problems epidemic isn’t stopping any time quickly, and Novo Nordisk is sitting fairly as a frontrunner on this increasing subject. The corporate additionally has a full plate of recent drug candidates within the pipeline that might gas future development.
Nevertheless, given the wealthy valuation and potential pace bumps forward, I think the shares may battle to maintain up their current Usain Bolt impression within the coming months. So whereas Novo Nordisk could be due a breather within the inventory market, I believe it stays a top-notch enterprise that deserves a spot on any savvy Idiot’s watchlist.
