Last week the Danish pharmaceutical Novo Nordisk surpassed LVMH as the European company with the highest value in terms of market capitalization, reaching 393.670 million euros compared to 389.489 million for the French luxury company. The dominant position in the diabetes market worldwide, together with the expectations of a very profitable obesity market in the United States, have been the reasons for the mega rally of the Danish company, which in the last three years has risen 50% on the stock market. % annual.
Novo Nordisk’s performance over the past 15 years has been impressive, with a return to shareholders of 25.6% per annum versus an annualized return of 6.8% for the Stoxx 600.
This growing demand diabetes market has caused sales to nearly quadruple since 2008 and earnings per share to rise from DKK 3.5 to DKK 24.7 in 2022. Now, with the outlook The obesity market, the consensus, always optimistic by definition, expects annual sales growth of 16.4% from 2023 to 2027 and earnings per share reaching 66.2 crowns by 2027, with which the share It is currently trading at a demanding ratio of 20 times the 2027 profit (PER ratio) and 36.6 times the 2023 profit.
The company is a clear example of a magnificent, well-managed business with generous gross operating profit margins (Ebitda) of 47%, with Ebitda conversions into normalized free cash flow in the area of 70/75%, with a excellent financial situation that will make it have a positive net cash next year and a return on invested capital of 65%, figures of a true champion and that give meaning to its current status as European leader in market capitalization.
Even so, a bit in the style of the technology companies, you can see that there is a very high expectation component embedded in the price and the key is that, between now and 2027, nothing goes wrong, since the risk of a correction would be high.
The challenges always come from the side of patents and the possible negative effects that could be derived from their drugs and at Novo Nordisk now I believe that a high risk is being added in terms of the expectations of the obesity market that can always be volatile and fashionable.
All eyes are now on the drugs Ozempic and Wegovy, which are becoming popular on the market for weight loss, with the risks that could be derived. At current prices I think that if someone wants to buy growth in Novo Nordisk they are all in the price and there is a risk of not having returns on the stock. If one wants to buy into the slower growing sector, but at very affordable prices and future returns, one should take a look at rivals GSK and Roche.
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