Diabetes drug Ozempic, along with its sibling product Wegovy, has provided a massive tailwind for Novo Nordisk (NVO -3.58%) this year as people grab at weight loss options. The pharma stock has skyrocketed more than 40% higher so far in 2023. But Novo Nordisk's share price will soon decline -- for a good reason.
The drugmaker has already conducted a 2-for-1 stock split of its class B shares listed on the Nasdaq Copenhagen exchange and it plans to conduct a similar split for its American depositary receipts (ADRs) listed on the New York Stock Exchange on Sept. 20. Should you buy the Ozempic maker before its ADR stock split?
Looking to the past
This won't be Novo Nordisk's first stock split. The company has split its shares four times over the last three decades.
The first one occurred on April 18, 1994. Novo Nordisk's shares didn't climb higher in the weeks preceding the 4-for-1 stock split and they didn't jump immediately afterward, either, although the stock did rise a modest amount over the next few weeks.
It was a similar story with Novo Nordisk's 5-for-2 stock split conducted on April 11, 2001. In this case, the stock fell in the days leading up to the split. Shares rebounded, but well after the stock split occurred.
Novo Nordisk's next stock split was on Dec. 17, 2007. This time the company conducted a 2-for-1 split. Again, there wasn't anything all that remarkable about its share price action before or after the stock split.
However, Novo Nordisk's most recent stock split, a 5-for-1 split conducted on Jan. 9, 2014, was an outlier. The big pharma company's shares rose steadily in the weeks prior to the split. Some of those gains were given up in the days after the stock split, though, before a nice earnings-related pop.
Is it different this time?
Probably the main lesson from Novo Nordisk's history of stock splits is that investors shouldn't count on a big move for the stock solely because of a split. However, the company's current situation is much different than its past.
Sales for Ozempic and Wegovy soared 44% year over year in the first six months of 2023. Thanks largely to these two related products (they're different dosages of semaglutide), Novo Nordisk commands the No. 1 spot in the diabetes and obesity markets.
These drugs have arguably put Novo Nordisk on the map like never before and that's mainly because they're highly effective at helping people lose weight.
But the idea behind buying a stock before it splits is that more investors will be able to afford it at a lower price and as those investors begin buying, it will help drive the stock higher.
Even with Novo Nordisk in the limelight these days, however, it seems unlikely that the "stock-split effect" will provide much of a catalyst. Why? Novo's ADR share price right now is below $200 and that's not such a steep price for most investors to pay. Lowering the price via a split probably won't bring in a ton of new investors.
The future is what really matters
If you're looking for a reason to buy Novo Nordisk shares, focus on the future. It's what really matters in investing.
Ozempic and Wegovy should continue to enjoy solid momentum and Novo Nordisk's pipeline includes oral versions of semaglutide for treating type 2 diabetes and enabling weight loss. The company is also exploring the use of the drug in treating nonalcoholic steatohepatitis (NASH), a serious chronic liver disease.
The main concern with investing in Novo Nordisk is that it faces stiff competition from Eli Lilly. Some analysts predict that Lilly's Mounjaro will soon eclipse Ozempic and Wegovy.
However, the diabetes and weight loss markets should be big enough to support multiple winners over the long term. Novo Nordisk will almost certainly be one of them and the stock is worth buying now.
