The proportion of Novo Nordisk (WKN: A1XA8R) recently made a strong dive. After the second quarter numbers, the shares corrected by more than 10%. After all: the mark of 100 euros could be maintained. Recently, it even rose slightly to 102 euros. Nevertheless: A small notch in the Danes’ seemingly perfect growth story.
But should foolish investors use the dive on Novo Nordisk to buy? The current quarterly numbers and further considerations can certainly help us find a valuation here.
Novo Nordisk: The perfect opportunity to buy more?
I would really be the last person to question Novo Nordisk’s growth story in a business-oriented way at the moment. In the first half of the year, sales rose by double digits. Result per share reached a strong plus of 13% to 12.08 Danish kroner. Values that clearly show that management is in growth mode and can even use pricing power.
The key point for me is still: With a share price of 779.10 Danish kroner, the price/earnings ratio for the current financial year (simply extrapolated) is 32.2. It still seems quite expensive. I no longer assess Novo Nordisk’s business model as young and dynamic, but as more mature in terms of the market. This means that in an optimistic case I would continue to use the current growth rates.
As a result, Novo Nordisk would trade at a price-to-earnings ratio of 17.5 in five years, with earnings per share of The value looks much more moderate. But the bottom line is: for a solid return, we need almost that kind of growth. However, it is not necessarily guaranteed for me. To be sure, the management has built up a strong, exposed position in the market and is also trying its best with share buybacks to tease returns and growth for investors.
For me, the dive had to go deeper
For me to be comfortable with Novo Nordisk’s return potential, the dive must continue for me. A P/E ratio of 25 would be more interesting to me. Although I would still see a valuation risk here. Nevertheless: In light of the price strength, the defensive market and strong products, I would be willing to risk the bet.
For now, though, I’d rather stay on the sidelines. Business-wise, Novo Nordisk is a strong stock, as the figures for the second quarter have once again shown. But the valuation is just too high for me to increase this position again at the moment. Maybe patience is worth it so I can increase my efforts again on more favorable terms at some point.
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Vincent owns shares in Novo Nordisk. The Colorful Fool recommends Novo Nordisk.