Both Pfizer (PFE 0.14%) and Novo Nordisk (NVO 1.57%) can claim to investors that plenty more growth is on the way. With new markets beckoning and multi-year strategic plans in full swing, both of these pharma heavyweights are in motion toward making more money.
But one of them is already making good on its ambitions, whereas the other is still gearing up for a big push. So which is the better growth stock?
Pfizer will recover from its rough patch, and its stock is cheap
Pfizer has a grand plan to commercialize a diverse set of the medicines in its pipeline that it expects will add as much as $45 billion in sales by 2030. It is also aiming to sign a ton of business development deals -- picking up lucrative early- and mid-stage pharmaceutical assets, production licenses, royalties, and a handful of smaller companies along the way.
For reference, its trailing-12-month sales are $68.5 billion, but due to the ongoing decline of its coronavirus product revenue, management anticipates a maximum of only $61 billion for the 2023 fiscal year. Without the detrimental impact of declining coronavirus jabs and antiviral pills, its sales actually rose by 10% year over year on an operational basis as of the third quarter.
So the growth stock thesis for Pfizer is essentially that it'll find success in reinvesting its coronavirus-related windfalls into research and development (R&D) and mergers and acquisitions (M&A), making its earnings rise significantly faster than they do now. Given its world-class management team and cash hoard of nearly $45 billion, it's likely to achieve this over the coming years.
One final factor in favor of Pfizer posting snappy returns in the future is its valuation. Its price-to-earnings (P/E) ratio is 16, a fair bit lower than the pharmaceutical industry's average P/E of 26. That means today's new shareholders could experience the added benefit of its valuation expanding as its strategic plans start to pay off later in the decade, leading to higher returns.
Novo Nordisk is flush with cash and investing for more growth
While Pfizer is still gearing up for greater sales, Novo Nordisk is enjoying strong growth right now. Thanks to its medicines that treat ubiquitous conditions like obesity and type 2 diabetes, it should be able to profitably capture many billions of dollars in revenue over the coming years. Then, it'll likely reinvest those earnings to do more of the same, eventually leading to the full penetration of both of those gargantuan markets.
So far, that plan is working swimmingly. Novo Nordisk already owns 33% of the market for diabetes therapies globally, but it's still adding to its share every quarter. With the help of its blockbuster drug Ozempic, revenue from the diabetes care segment grew by 25% year over year as of the third quarter. And due to hot sales of its obesity therapy Wegovy, sales in the obesity care segment exploded by 174% in the first nine months of this year alone.
Both medicines are household names, and they're flying off the shelf so quickly that they're in a state of shortage and the company is scrambling to increase its manufacturing capacity to meet demand. The pace of sales is likely to intensify further still, as more insurers opt to cover treatment, and as more consumers hear about the associated benefits.
That solid growth didn't just spring up overnight, though it did accelerate significantly in 2023. Novo Nordisk's quarterly net income is up by 120% in the last three years, reaching $3.3 billion. What's more, Wall Street analysts are on average calling for at least two more fiscal years of strong earnings, so it's safe to say that sentiment surrounding Novo Nordisk is positive.
Thus, although one of the arguments for the appeal of Pfizer is that its valuation is low, the opposite argument applies for Novo Nordisk. Its P/E multiple is 42, which can be interpreted as the market expecting its earnings to rise at a faster-than-average pace. While its shares are no bargain, the stock's valuation isn't so high that investors need to fear a hype bubble popping and cratering shares.
This is an easy call
While Pfizer's long-term prospects are favorable, its transitional period in the near term means it will struggle to deliver much in the way of growth for shareholders. Of course, in the long run people who buy it now will probably see good returns, especially considering its rock-bottom valuation.
In contrast, Novo Nordisk is practically printing money with its hottest medicines, and its party is just getting started. That makes it the better growth stock right now, even considering the premium pricing of its shares.
