About Novo Nordisk
Truth be told, the chances of one being even vaguely familiar with Novo Nordisk when the name of the company graces their ears is slim to none.
Are we right or are we right?
Even if you haven’t heard of the company, many have relied and still rely on this company and its products, as Novo Nordisk is an absolute staple in the pharmaceutical sector, specifically within the diabetes treatment space, which, unfortunately, is an all too rapidly growing industry.
This is good for a company such as Bagsværd, Denmark-headquartered, largest seller of diabetes medicines worldwide, Novo Nordisk, but not exactly a great indicator for the future of humanity on the health spectrum.
Nevertheless, the company also engages in the sale of obesity-related medications such as their cream of the crop, blockbuster assets, Saxenda and Wegovy.
Not only does the company generate a considerable amount of revenue (and profit) from these incredibly valuable assets, it also generates a notable amount of sales through its long list of diabetes medications as well as its supplemental diabetes treatment products such as its famed insulin pens and injection needles.
Frankly, this company is extraordinarily dominant and a smooth, at times below the radar, prominent operator in the diabetes space, as it apparently holds a whopping 45% market share in the insulin market alone.
So far, this company has done an incredible job at developing drugs and other medications and consistently obtaining the relevant, required stamps of approval on its way to the top of the diabetes market.
While it would be easy to say that, in terms of competition, this company goes up against all of Big Pharma, some of its rather fierce, diabetes-focused competitors include the likes of Eli Lilly and Company, Abbott Laboratories, Gilead Sciences and Amgen, to list a few majors that Novo Nordisk has managed to outperform, at least largely on the basis of share price performance over the last handful of years.
Speaking of share price, let’s dig into this company’s core financials more so as to try to determine whether or not Novo Nordisk’s stock (NYSE: NVO) is worth buying now and holding later.
Novo Nordisk’s stock financials
With a not-so-surprisingly enormous market capitalization of $277.8 billion, a share price of $163.24, a price-to-earnings (P/E) ratio of 41.72 and an annually distributed dividend of $1.76, Novo’s stock (NYSE: NVO) is a bit expensive at the moment relative to what it is actually worth, according to the stock’s present price-to-earnings ratio.
Nevertheless, if this company is still growing at a rapid rate (which we suspect it is), it might be worth paying a bit of a premium to own shares in this public diabetes treatment company.
Let’s do some more due diligence on the matter throughout the rest of this stock analysis.
The company’s executive team is in charge of around $241.2 billion in terms of total assets as well as approximately $157.7 billion in terms of total liabilities, according to Novo Nordisk’s balance sheet displayed on TD Ameritrade’s platform.
For a mature company with some sizable growth still ahead, this is a wildly lean, well positioned balance sheet that is both ready to get itself through an economic recession (or even depression for that matter) while also lending itself the ability to engage in some meaningful, synergy-filled mergers and acquisitions (M&A) activity, if it so chooses.
This balance sheet gives the company a lot of options which is certainly a good thing.
Ne, a great thing.
Regarding the company’s income statement, Novo’s total annual revenue since 2018 has risen year-over-year (YOY) from a base of $111.8 billion laid in 2018 to its latest reported figure (published on TD Ameritrade’s platform also) of just south of $177 billion.
For this company to already be as large as it is and still grow its total annual revenues by a substantial margin year after year is quite impressive.
It also candidly speaks to the continued demand for the company’s core products and medications both in the United States and around the world, which is a good sign from a strict prospective investor perspective.
Now, let’s see just how cash flow generative this company is.
According to the company’s cash flow statement, specifically its net income and total cash from operations have been both consistent and growing, at phenomenal rates we might add.
For example, the company’s net income since 2018 has grown from a base of $38.6 billion to $55.5 billion (2022) while its total cash from operations has climbed from just north of $45 billion in 2018 to nearly $79 billion in 2022.
This company’s management team has done an excellent job at carving out a considerable amount of income and cash from the development and sale of its products and medicines, however, it should be understood that this company has an added luxury in that operating as a gigantic player in the pharmaceutical industry lends a company such as Novo Nordisk the ability to have relatively beefed up profit margins and thus relative ease in producing tons of cash through its operations.
It undoubtedly pays to be a leader in the diabetes treatment space.
Novo Nordisk’s stock fundamentals
While we’re still on the topic of profit margins, Novo Nordisk’s are as good as we expected.
For instance, according to TD Ameritrade’s platform, the company’s trailing twelve month (TTM) net profit margin towers over the industry’s average at 31.38% to the industry’s average of -50.74%.
Like we said, it pays to be a leader in Big Pharma.
As it pertains to the company’s TTM returns on assets and investments, the differences between Novo Nordisk’s and the average of the industry’s are quite massive, of course, favoring the company in question.
Specifically, also according to TD Ameritrade’s platform, the company’s TTM return on assets stands at 25.48% to the industry’s average of 3.65% while the company’s TTM return on investment(s) trumps the industry’s average at a ratio of 51.58% to the industry’s 5.96%.
Both of these incredible discrepancies signal that this company is very efficient with its capital and other resources, which is obviously a fantastic sign regarding things now and things to come later.
Should you buy Novo Nordisk stock?
Make no mistake about it, this company’s share price (NYSE: NVO) is pricey right now from the standpoint of its present price-to-earnings ratio, as it is generally accepted that a P/E ratio of 20 indicates that a stock is trading at exactly fair value and the higher the P/E is to the upside of this benchmark, the more the shares are overvalued relative to what they’re actually worth at the moment.
However, consistent, monstrous growth is nothing but evident with this company and its management team has done an exceptional job at keeping its balance sheet healthy as a horse, its TTM net profit margin and return(s) metrics far better than the competition’s averages, marketing and distributing its naturally recession proof line of products and medicines to the masses and making a difference in its customers’ lives.
While it is somewhat rare, we wouldn’t mind considering paying a premium for this company’s stock (NYSE: NVO) as we’re a tad worried that it will continue outperforming the market, even during the current recession and even the high likelihood of an nearing economic depression.
Therefore, based on this and the aforementioned reasons above, we give this company’s stock a “buy” rating.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.