Ozempic, one of Novo Nordisk’s star drugs. GEORGE FREY (Portal)
Last week, Danish pharmaceutical company Novo Nordisk overtook LVMH as the European company with the highest market value, reaching €393,670 million compared to €389,489 million for the French luxury company. The dominant position in the global diabetes market as well as the expectation of a very profitable obesity market in the United States were the reasons for the mega rally of the Danish company, which has risen 50% on the stock market in the last three years. % annually.
Novo Nordisk’s performance over the last 15 years has been impressive, with a return to shareholders of 25.6% per year compared to an annualized return of 6.8% for the Stoxx 600.
This diabetes market with growing demand has resulted in sales almost quadrupling since 2008 and earnings per share increasing from 3.5 Danish kroner to 24.7 kroner in 2022. Given the outlook for the obesity market, the consensus, which is always optimistic by definition, expects annual sales growth of 16.4% from 2023 to 2027 and earnings per share of 66.2 crowns in 2027, making the stock a demanding one at the moment Ratio of 20x 2027 earnings (P/E ratio) and 36.6x 2023 earnings.
The company is a clear example of an excellent, well-managed business with a generous gross operating profit margin (Ebitda) of 47%, a conversion of Ebitda to normalized free cash flow in the order of 70/75% and an excellent financial position means that the company next year will have positive net liquidity and a return on invested capital of 65%, real benchmarks that give importance to its current status as European leader in terms of market capitalization.
However, similar to technology companies, one can see that there is a very high expectation component in the price and the key is that nothing fails until 2027 as the risk of a correction would be high.
The challenges always come from the side of patents and the possible negative effects that could arise from their drugs and at Novo Nordisk I now believe that there is a high risk in terms of the expectations of the obesity market, which is always volatile and can be fashionable.
All eyes are now on the drugs Ozempic and Wegovy, which are becoming increasingly popular on the weight loss market, with the associated risks. At current prices, I think that if someone wants to buy growth in Novo Nordisk, everything is included in the price and there is a risk that the stock will not produce a return. If you want to buy in the slower growth sector but at very reasonable prices and future returns, you should take a look at competitors GSK and Roche.
Follow all information Five days on Facebook, Twitter and LinkedIn or in our Five Day Agenda newsletter
The five-day agenda
The most important business quotes of the day, with the keys and context to understand their significance
received it
Register for free to continue reading in Cinco Días
If you have an account with EL PAÍS, you can use it to identify yourself
Thank you for reading Cinco Días