If you are wondering whether Novo Nordisk shares still offer value, this article walks through what the current price might be implying and how that lines up with a range of valuation checks.
The stock last closed at DKK 301.0, with returns of a 3.1% decline over 7 days, a 24.1% decline over 30 days, an 8.9% decline year to date and a 50.9% decline over 1 year, while the 5 year return currently stands at 49.8%.
These moves sit against a backdrop of ongoing attention on Novo Nordisk’s position in pharmaceuticals and biotech, including continued focus from investors on how its pipeline and product mix might support long term demand. That context helps frame whether the recent pullback reflects changing expectations or simply a reset in sentiment.
On our checks, Novo Nordisk scores a 5/6 valuation score, and next we will look at what traditional valuation methods suggest about the stock and why there may be an even more useful way to think about value by the end of this article.
A Discounted Cash Flow, or DCF, model estimates what a company might be worth by projecting its future cash flows and then discounting those back into today’s money. It is essentially asking what those future DKK cash flows are worth right now.
For Novo Nordisk, the model uses last twelve month free cash flow of about DKK 52,097.2m and a 2 Stage Free Cash Flow to Equity approach. Analysts provide explicit free cash flow estimates out to 2030, including a projection of DKK 131,719.5m in that year. Beyond the near term, Simply Wall St extrapolates additional annual cash flows to build a ten year path, then discounts each of those DKK figures back to today using its own assumptions.
On this basis, the DCF model arrives at an estimated intrinsic value of DKK 971.74 per share. Compared with the recent share price of DKK 301.0, that output implies the stock is around 69.0% undervalued according to this specific set of cash flow assumptions and discount rates.
For a profitable company like Novo Nordisk, the P/E ratio is a straightforward way to relate what you pay for each share to the earnings that support it. Investors usually expect higher P/E ratios when they see stronger growth potential or lower perceived risk, and lower P/E ratios when growth expectations are more muted or risks are higher.
Novo Nordisk currently trades on a P/E of 13.06x. That sits below the Pharmaceuticals industry average P/E of 21.94x and also below the peer average of 26.41x. On the face of it, the stock is priced at a lower earnings multiple than both its sector and a broad peer group.
Simply Wall St’s Fair Ratio for Novo Nordisk is 25.83x, which is its proprietary estimate of what a more normal P/E could look like after accounting for factors such as the company’s earnings growth profile, industry, profit margins, market cap and key risks. This tailored Fair Ratio can be more informative than a simple comparison to industry or peers because it adjusts for company specific characteristics rather than assuming one size fits all. Comparing the Fair Ratio of 25.83x with the current P/E of 13.06x suggests the market is pricing Novo Nordisk below that modelled level.
Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives. These are Simply Wall St’s way for you to attach a clear story about Novo Nordisk to your own numbers for fair value, future revenue, earnings and margins, then see how that story stacks up against the current share price.
A Narrative is essentially your view of the company written down and linked to a forecast. Instead of just looking at a DCF or P/E in isolation, you connect what you think will happen in Novo Nordisk’s business to explicit estimates, which then roll up into a Fair Value you can compare with today’s price to decide whether the stock looks expensive or cheap to you.
These Narratives are available on Simply Wall St’s Community page and are designed to be easy to use. You can read others’ views, duplicate a Narrative that fits your thinking, tweak the assumptions and let the platform continuously refresh the valuation when new information like earnings, news or guidance is added.
For example, one Novo Nordisk Narrative on the platform currently sets Fair Value at DKK 340.0 per share while another uses DKK 1,036.18. This shows how two investors can look at the same company, plug in very different margin, growth and P/E assumptions, and then use those Fair Values against the current price to decide for themselves whether to wait, add or take money off the table.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Companies discussed in this article include NOVO-B.CO.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com
