Novo Nordisk is undervalued by the market, presenting a rare asymmetrical value opportunity despite short-term issues and CEO transition.
Its dominant 62% global GLP-1 market share, extensive manufacturing scale, and growing international presence support robust double-digit growth.
Valuation is unjustly compressed at 4.9x P/S compared to Eli Lilly's 14x, despite Novo's superior revenues and operational advantages.
I foresee a potential 100%+ upside as the market adjusts NVO's multiple, with catalysts such as Medicare/Medicaid access and oral GLP-1 expansion.
Novo Nordisk (NVO) is being misinterpreted by the market, creating a highly asymmetric value opportunity within the healthcare sector currently.
In my view, recent news has emphasized short-term pressures, such as a temporary guidance reduction and CEO transition, but the fundamental strengths remain robust, if not enhanced. The perceived weaknesses actually reveal deeper layers of structural advantages.
A new policy development initiated by the Trump administration proposes a five-year experimental program to authorize Medicare and Medicaid coverage for GLP-1 drugs like Ozempic, Wegovy, Mounjaro, and Zepbound, expected to roll out in 2026 for Medicaid and 2027 for Medicare. This reflects a recognition of obesity’s long-term cost implications and could generate new demand from previously excluded patients due to affordability.
Novo Nordisk's stock dropped nearly 20% after cutting guidance and appointing a new CEO—a reaction I find irrational given that they hold two-thirds of the global GLP-1 market, generate more obesity drug revenue than Eli Lilly (LLY), and maintain double-digit sales growth. The market seems to be treating Novo like a failed growth story, which isn't warranted.
Novo Nordisk has not just maintained but actually strengthened its dominant position in one of healthcare's fastest-growing markets, yet the market has punished it as if it's struggling or facing existential threats.
With its valuation compressed to just over 4.9x P/S, I believe there is considerable upside of about 100%+ for a business still operating from a position of strength. Let me explain why I'm increasing my investment.
The figures around Novo's market position tell a story starkly different from market sentiments. Novo has tripled its global GLP-1 customer base in just three years, now serving close to two-thirds of all patients on GLP-1 treatments for diabetes and obesity worldwide. The company's 62% global volume market share in GLP-1 treatments represents a dominance that typically takes decades to build and is extraordinarily challenging for competitors to unseat.
In 2022, Novo held a 60% volume market share, while Eli Lilly had 37%. By February 2025, despite concerns about competition, Novo strengthened its position to 62% as Lilly’s share declined to 35%. This raises the question, "Is Novo losing its edge?". Data suggests the opposite, yet the market prices Novo as if it's losing ground.
In Q1 FY25, Novo's combined Ozempic and Wegovy revenues totaled $7.6 billion, significantly outpacing Eli Lilly's $6.2 billion combined tirzepatide revenue. Novo generates superior absolute revenues from GLP-1 products but trades at about one-third of Lilly's valuation multiple. This disparity becomes even more perplexing considering that Ozempic maintains the broadest regulatory label among GLP-1 drugs and is widely recognized among physicians and patients.
Novo Nordisk isn't merely distinguished by increasing GLP-1 demand; its substantial manufacturing capabilities often go unnoticed. Operating as the world's largest manufacturer of insulin and GLP-1 active ingredients, Novo achieves continuous high-volume production efficiently. Competitors struggle with yield bottlenecks and API purity challenges, while Novo has industrialized these processes.
Recent strategic moves include acquiring Catalent for $16.5 billion, adding manufacturing capacity and providing immediate US facilities. This acquisition addresses regulatory and political risks prevalent in the current environment. They are also investing over $4 billion in a North Carolina fill-and-finish facility to boost US market share.
In Q1 FY25, Novo Nordisk reported 18% sales growth in constant currency rates and revenue of DKK 78.1 billion, with operating profit growth of 20% to DKK 38.8 billion. Despite substantial capacity expansion costs and the Catalent acquisition, they maintained gross margins of 83.5%. This margin resilience underscores the strength of their product portfolio and market pricing power.
Examining the multiyear growth trajectory highlights consistent revenue growth between 20-30%, rare in many industries, especially pharma. Since 2016, their operating profit has nearly tripled, attributed to manufacturing and operational leverage few peers possess.
Novo Nordisk’s geographic revenue diversification is undervalued. Concerns about US regulatory pressure and competition overlook their global business, offering multiple growth avenues and natural hedging against regional risks.
Q1 US revenue was about DKK 44.3 billion, representing 57% of total revenue with 17% growth, while International Operations generated DKK 33.8 billion with 19% growth. International markets delivered 24% growth and the APAC region 25%, showing Novo's growth story extends beyond US markets.
This geographic diversification is particularly valuable considering the obesity care market. While focus is primarily US-centric, international opportunities remain largely untapped. Novo maintains over 72% market share in international diabetes and obesity treatments, with Wegovy launched in only about 25 countries. Given 890 million people live with obesity yet only a few million are treated, the runway for international expansion is vast.
The cornerstone of my thesis is the valuation anomaly, which appears irrational. Novo currently trades at a P/S of 4.9x, compared to Eli Lilly's 14x multiple, despite Novo’s superior absolute revenue generation and slightly lower growth rates.
Lilly's 36% revenue growth rate compared to Novo's 24% is approximately a 33% difference, yet the valuation gap implies Novo should be worth one-third as much per sales dollar.
If we accept Lilly's 14x P/S multiple is justified by its 36% revenue growth, then Novo's fair multiple should be around 9.8x based on its 24% growth rate, roughly 67% of Lilly's multiple.
Applying a growth-adjusted multiple, Novo's justified P/S ratio should be approximately 9.8x, translating to a fair value of $96 per share based on trailing revenue and current share count.
Considering quality differences, Novo maintains superior market share, manufacturing capacity, and generates higher absolute revenues from weight loss products. Rational valuation frameworks should award these qualities a premium rather than a discount.
Currently, the market prices Novo as having permanent competitive disadvantages while its advantages are seen as temporary, when evidence suggests the opposite.
I target a 10x P/S ratio normalization, requiring market recognition of Novo’s fair valuation akin to other high-growth pharmaceutical companies. Eli Lilly’s 14x P/S trades lower GLP-1 revenues, so 10x P/S is conservative normalization rather than optimistic expansion.
This is not wishful thinking; it’s based on historical performance and untapped market opportunities already materializing. Novo’s track record of 25% revenue growth aligns with projected GLP-1 market growth to $156.7 billion by 2030 at a 17.4% CAGR. Addressable opportunities extend beyond current boundaries.
890 million people live with obesity, yet few million are treated internationally. Capturing 5% of this population would double Novo’s global patient base. This began the earliest stage of potential decade-long international expansion.
Oral semaglutide 25 mg, pending approval, could be a significant catalyst with broad market impact. The OASIS 4 trial demonstrated 16.6% weight loss, with safety and tolerability profiles similar to injectable semaglutide, addressing barriers to weight loss medication adoption.
Patient surveys consistently show strong demand for oral alternatives, with convenience being a major treatment decision factor. Approval as the first oral GLP-1 for weight management could expand the market by millions preferring oral medications.
The valuation compression occurred while Novo maintained dominant market position and consistent financial performance, creating an asymmetric risk/reward opportunity with potential upside significantly outweighing downside risk.
Novo Nordisk has already released preliminary Q2 2025 results. Sales grew 18% in constant currency while EBIT surged 40%. Diluted earnings per share reached 5.9 DKK, reflecting operational leverage discussed throughout. The real story lies in that 40% EBIT growth, demonstrating operational leverage that sets Novo apart from its peers.
The August 6 earnings call will focus on qualitative insights rather than financials, potentially validating or challenging my thesis. Key areas include management’s updated perspective on competition, particularly strategies against Eli Lilly’s Zepbound and compounding issues.
Preliminary results show resilience despite pressures, but understanding their strategy to regain momentum is crucial. Zepbound currently holds 53% of the U.S. incretin analogs market compared to Novo’s 46%, making geographic competition a key focus rather than fundamental issues.
While trailing in the U.S., Novo maintains a dominant global GLP-1 volume share at 62%, suggesting competitive pressure is region-specific. My thesis revolves around international expansion driving massive growth.
While optimistic about Novo’s prospects, I acknowledge potential scenarios challenging my thesis.
If CagriSema fails approval or displays poor efficacy, it would remove significant near-term catalysts. Similarly, oral semaglutide's market penetration hindered by tolerability issues would eliminate a major growth driver, though these risks are minimal.
If the addressable market is smaller due to insurance coverage limitations, patient affordability, or lower real-world efficacy, growth projections may shrink dramatically.
No major surprises are expected from the August 6 earnings release, given conservative guidance. Nonetheless, market overreactions are possible.
If the stock dips post-earnings due to unsettling commentary or focus on short-term challenges over long-term fundamentals, my investment thesis remains unchanged. It would present a golden buying opportunity, showcasing contrarian investing rewards.
I have a specific options strategy for such scenarios. With strong conviction based on solid fundamental analysis, market volatility becomes advantageous. Occasionally, the market presents opportunities wrapped in fear, and I'm prepared.
This guidance cut reinforces the bull case, addressing unsustainable expectations and setting up potential positive surprises. The temporary U.S. market competition and compounded GLP-1 alternatives will resolve over time. With U.S. manufacturing expansions and regulatory actions against compounded alternatives expected in late 2025, Novo is positioned to reclaim lost ground from a position of strength.
Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.