Novo Nordisk NVO shares have lost 21% in the past three months against the industry’s growth of 4.6%. The company has also underperformed in the sector and the S&P 500 during the same time frame, as seen in the chart below. The stock is currently trading above its 50-day moving average but below its 200-day moving average.

NVO Stock Underperforms the Industry, Sector & the S&P 500

Image Source: Zacks Investment Research

Several factors in the past three months caused Novo Nordisk's stock to dip. In December 2024, the company faced a massive setback after it failed to meet the efficacy guidance for its investigational obesity candidate, CagriSema. The failure favored Novo Nordisk’s arch-rival, Eli Lilly LLY, in the obesity market space, whose Zepbound (tirzepatide) continues to maintain the best-in-class title for obesity treatment. Lilly also markets tirzepatide under the brand name, Mounjaro, for type II diabetes (T2D).

Another factor that has likely contributed to the steep decline in NVO’s stock price is the removal of Lilly’s tirzepatide injection products from the FDA’s drug shortage list. This shift suggests LLY can now meet the demand for obesity medications, potentially capturing a larger U.S. market share and boosting its revenues, while Novo Nordisk’s popular semaglutide medicines, Ozempic (T2D) and Wegovy (obesity), remain on the list, limiting its sales opportunities. Adding to the setbacks, Lilly’s Zepbound had earlier outperformed Novo Nordisk’s Wegovy (20.2% compared with 13.7%, respectively) in a weight-loss head-to-head study. This could result in a change in patient preference from Wegovy to Zepbound, again leading to a loss of market share.

Medicare has also selected NVO’s semaglutide medicines for the second round of price negotiations in 2025, which is likely to negatively impact the company's profit margins in the future.

However, the company’s strong fundamentals and the untapped nature of the obesity market make us believe that the setback is temporary. Shares of Novo Nordisk have surged more than 175% in the past five years. Total revenues jumped 129% on a reported basis, while the net profit margin consistently exceeded 31%, reaching a five-year high of 36% in 2023.

Let’s dig deeper and understand the company’s strengths and weaknesses in greater detail to understand how to play the stock after the recent price drop.

Semaglutide - NVO’s Growth Engine

NVO’s success in the past few years is underscored by its marketed semaglutide (GLP-1 agonist) medicines.

The company has a strong presence in the Diabetes care market, with one of the broadest diabetes portfolios in the industry. The company has maintained its global diabetes value market share over the past year at 33.7%, fueled by Rybelsus, Ozempic and Victoza, putting up a strong performance. In 2024, Novo Nordisk’s GLP-1 sales in diabetes increased 21%, depicting greater patient outreach and market capture by its GLP-1 products. Novo Nordisk continues to be the global market leader in the GLP-1 segment, with around 55.1% value market share.

Wegovy is a significant contributor to Novo Nordisk's revenues. Despite supply challenges limiting the company’s ability to meet investor sales expectations, Wegovy revenues grew 86% to DKK 58 billion in 2024 due to strong prescription growth, driving higher revenues and profits. Additionally, Ozempic sales are contributing positively to overall revenues, increasing 26% to DKK 120 billion in the past year. The company has also been investing heavily to expand its manufacturing capacity as part of its strategic move to entrench its diabetes and obesity care market leadership for its GLP-1 products.

Several other companies like Amgen AMGN and Viking Therapeutics VKTX are making rapid progress in the development of GLP-1-based candidates in their clinical pipeline. These can pose strong competition to NVO in the future.

NVO’s Label Expansion Plans to Boost Demand

Novo Nordisk is actively exploring additional uses for semaglutide, including evaluating Wegovy for heart failure in diabetes and obesity patients, and Ozempic as a treatment for T2D and chronic kidney disease (CKD). The company is also studying semaglutide for metabolic dysfunction-associated steatohepatitis. These efforts could expand the eligible patient base for the drug, pending approval.

Wegovy’s label has been expanded in the United States and the EU to reduce the risk of serious heart problems in obese/overweight adults, which has been boosting its sales. The company is looking to further expand Wegovy’s label to treat patients with obesity-related heart failure with preserved ejection fraction in the EU and U.S. markets. Additionally, a late-stage cardiovascular outcomes study, evaluating oral semaglutide (Rybelsus) as an adjunct to the standard of care for the prevention of serious heart problems in T2D patients, recently met its primary endpoint. A regulatory filing seeking the label expansion of Ozempic to treat patients with T2D and CKD is currently under review in the EU.

Beyond diabetes and obesity, Novo Nordisk is diversifying its portfolio by developing Mim8 for hemophilia A, with plans to submit it for regulatory approval soon. Alhemo (concizumab) recently received approval in the EU for treating haemophilia A or B with inhibitors. Alhemo is not approved in the United States.

NVO’s Premium Valuation, Mixed Estimates Movement

Novo Nordisk is trading at a premium to the industry, as seen in the chart below. Going by the price/earnings ratio, the company’s shares currently trade at 21.96 forward earnings, which is more than 17.8 for the industry.

NVO Stock Valuation

Image Source: Zacks Investment Research

Earnings estimates for 2025 have decreased from $3.88 to $3.84 per share over the past 30 days. During the same time frame, Novo Nordisk’s 2026 earnings per share estimates have increased from $4.53 to $4.66.

NVO Estimate Movement

Image Source: Zacks Investment Research

The stock’s return on equity on a trailing 12-month basis is 84.69%, which is higher than 34.61% for the large drugmaker industry, as seen in the chart below.

NVO Return on Equity

Image Source: Zacks Investment Research

How to Play NVO Stock

Novo Nordisk, currently carrying a Zacks Rank #3 (Hold), exhibits significant growth potential in the future. The recent pipeline and regulatory setbacks that caused the stock price to slide are likely to be temporary and we remain confident that NVO is a good stock to retain. Its growing year-over-year revenue figures and profit margins suggest that the company has the potential for further growth in the years to come, primarily driven by increased sales of Wegovy and Ozempic. The closing of the Catalent deal in December last year is also expected to help NVO counter supply issues for its GLP-1 products.

Furthermore, the company is looking to expand the indications for Wegovy, Ozempic and Rybelsus to increase patient eligibility, which, if approved, would further boost revenues. Novo Nordisk is also developing new obesity treatments to stay competitive, especially in the U.S. market, which holds significant growth potential.

Thus, we can conclude that the temporary decline in the stock price should not bother long-term investors. In fact, such opportunities make for a lucrative entry point for potential new long-term investors. Investors who already own the stock should continue to hold it for long-term gains.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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