Don't Worry About Novo Nordisk's Premium Stock Price. It's Still a Buy.

If you aren’t familiar with Novo Nordisk (NVO 2.37%) by name, you’ll probably recognize some of its flagship medications. The Danish pharmaceutical giant is the developer of diabetes and obesity treatments Ozempic, Rybelsus, and Wegovy.

The smashing success of these medications has sent Novo Nordisk stock soaring 72% over the past year. In fact, the company is the 14th-most-valuable business in the world, as measured by market capitalization. That’s larger than Walmart, Mastercard, and ExxonMobil, just to name a few.

After reporting sizzling fourth-quarter earnings last week, Novo Nordisk is heading even higher. With such a lofty valuation, some investors may be tempted to take some gains. Let’s break down how the company is performing and why doubling down and scooping up shares may be a more prudent strategy in the long term.

Novo Nordisk’s magic run

Novo Nordisk breaks down its revenue into four categories: rare diseases, insulin, obesity care, and glucagon-like peptide 1 (GLP-1) agonists. GLP-1 products include diabetes medications Ozempic and Rybelsus, while obesity care is headlined by Wegovy.

In 2023, Novo Nordisk generated growth of 154% and 52% across obesity care and GLP-1 products, respectively. Perhaps even more encouraging is that the company’s blockbuster drugs are making waves around the globe.

In the U.S. alone, sales of Wegovy surged 393% during 2023. But on an international basis, obesity care still grew by 47% year over year — more than a healthy annual jump. Moreover, the popularity of Ozempic and Rybelsus has helped fuel Novo Nordisk’s market-leading position among GLP-1 treatments. Per management’s commentary, the company has roughly 55% share of the GLP-1 market.

Image source: Getty Images.

How are investors treating the stock?

Investors haven’t been shy about rewarding Novo Nordisk. In 2023, the stock surged by 53%. So far in 2024, it’s up another 14% thanks in large part to its terrific earnings report. It’s this enhanced buying activity that has caused the company’s market cap to soar.

NVO Market Cap Chart

NVO Market Cap data by YCharts

The chart above really drives home just how much the company’s valuation has changed over the last few years. In particular, 2023 was clearly a standout year based on the company’s impressive results.

Buy now, or wait until later?

One of the toughest things in investing is knowing when to sell. Be it cutting your losses in a poor investment or taking some gains off the table after a generous return, selling a stock can induce some complicated emotions. However, the same dynamic applies to buying a stock.

For instance, sometimes when a stock begins to soar, investors choose to sit on the sidelines and wait until the momentum exits. Indeed, the lingering fear of being a bag holder after a stock drops can influence a lot of hesitation when it comes to investing.

While anyone is susceptible to the scenarios outlined above, long-term investors may be more immune. There’s no doubt that Novo Nordisk is having a bit of a moment as it conquers the diabetes and obesity markets. Further, despite intense competition from Eli Lilly in particular, investors clearly aren’t too worried.

In fact, the rising competitive landscape could actually be seen as a positive long-term catalyst for Novo Nordisk, given the robust outlook on the weight loss industry — a market expected to eclipse $200 billion by 2030, according to Barclays.

Given the long-term positive sentiment, I’d caution investors against waiting until there is a drop in Novo Nordisk stock — it may never occur. While scooping up shares now at a premium could result in some unrealized losses if the stock sells off, the long-term picture still appears intact. It’s far more important to get started spending time in the market, rather than trying to time the market.

For these reasons, I see Novo Nordisk as an encouraging opportunity to buy and hold.

Adam Spatacco has positions in Eli Lilly and Novo Nordisk. The Motley Fool has positions in and recommends Mastercard and Walmart. The Motley Fool recommends Barclays Plc and Novo Nordisk and recommends the following options: long January 2025 $370 calls on Mastercard and short January 2025 $380 calls on Mastercard. The Motley Fool has a disclosure policy.

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