This might surprise some, but Danish pharmaceutical giant Novo Nordisk (NVO -1.73%) has significantly lagged the market in the past year. The drugmaker's shares are down by 40% over the trailing-12-month period, despite grabbing headlines for its work in the red-hot weight management drug market.
Novo Nordisk has faced some issues, but even taking those into account, the company's prospects remain excellent. Long-term investors can still safely add this stock to their portfolios and hold it for for the long term.
Why Novo Nordisk hasn't performed well
Novo Nordisk's most famous GLP-1 medicines, Wegovy and Ozempic, are helping drive solid top-line growth. In 2024, the company's net sales increased by 25% year over year to 290.4 billion Danish kroner ($42 billion USD). That would be an excellent performance for most drugmakers of this size and would likely lead to a strong stock market performance for the year.
However, Novo Nordisk encountered two main issues last year. First, much of the success related to its GLP-1 therapies -- its most significant growth drivers -- was already somewhat baked into its stock price. However, despite appearances, they did not perform as well as expected, disappointing investors.
NYSE: NVO
Key Data Points
Second, one of Novo Nordisk's leading pipeline candidates failed to knock things out of the park. The company is developing CagriSema as a weight management medicine. In December, Novo Nordisk reported that CagriSema helped patients lose, on average, 22.7% of their body weight in a phase 3 study. That would have been an excellent performance for the investigational medicine, if not for the fact that Novo Nordisk's management was shooting for an average of 25% weight loss in the trial.
The company missing its own projection, coupled with the more complex (and expensive) manufacturing process for CagriSema versus other GLP-1 leaders, sent Novo Nordisk's stock price down by about 20% in a single trading session.
Looking beyond near-term issues
Despite these headwinds, there is still hope. Amid these troubles, Novo Nordisk's valuation has become more reasonable. The stock's forward price-to-earnings (P/E) was above 40 about a year ago but now stands at 18.8.
NVO PE Ratio (Forward) data by YCharts
The average for the healthcare industry is 17.4. Novo Nordisk might be a steal at these levels, considering its standing in the pharmaceutical industry -- particularly in its core therapeutic areas. Novo Nordisk has been a leader in the diabetes drug market for decades. As of November, it held a 44% share of the global insulin market, although that's a slight decrease from the 45.3% share it had in November 2023 (it tends to go up and down).
Novo Nordisk also has a leading share of the GLP-1 field, which should grow substantially in the coming years. Despite CagriSema's setback, Novo Nordisk's pipeline in weight management is without peer, except for its eternal rival, Eli Lilly (LLY -3.61%). Novo Nordisk's long-standing leadership in these areas speaks volumes about its internal culture of innovation. Future clinical successes and breakthroughs aren't independent of past ones -- even failures help inform subsequent research.
Investors can be reasonably sure that Novo Nordisk will remain a leader in diabetes and weight management while its revenue and earnings continue growing at a good clip. Further, the company is expanding its reach and developing medicines in several other areas, including rare diseases, neurological disorders like Alzheimer's and Parkinson's, and more. Novo Nordisk is also pouring money into technology, helping build an artificial intelligence (AI) supercomputer to improve efficiency in research.
AI is transforming industries, and healthcare will be no different. Novo Nordisk is getting ahead of this eventual outcome by investing in an initiative that could pay rich dividends down the line.
And speaking of dividends, Novo Nordisk pays one, and it has increased its annual dividend per share by almost 284% in the past decade. That's one more reason to buy the stock. It can also cater to income seekers. Novo Nordisk might not have performed well in the past year, but the company's outlook remains incredibly strong.
Investors with a "forever" holding period should strongly consider buying the company's shares.
