Pharma giant Novo Nordisk (NVO 0.84%) made a lot of noise last year. The company's shares crushed the otherwise high-flying market thanks to its work in the anti-obesity drug space. However, Novo Nordisk's strong performances didn't start in 2023; the biotech has been delivering outsized returns for some time.
Let's find out how much those who put $5,000 into this stock about five years ago -- in 2019 -- would have today, and what that means for investors moving forward.
NVO Total Return Level data by YCharts.
It hasn't all been smooth sailing
Novo Nordisk has encountered some issues since 2019. First and foremost, as with many other companies, the pandemic disrupted its business. Novo Nordisk had some trouble with manufacturing and distributing its medicines following the initial outbreak.
Beyond that, both the public and government officials pointed the finger at Novo Nordisk, and other leaders in the insulin market, for the outrageous prices they charge for their products. This backlash led to Novo Nordisk announcing that it was decreasing its insulin prices last year, following the lead of its longtime rival, Eli Lilly.
Despite these issues, Novo Nordisk has been impressive. Its now famous diabetes therapy, Ozempic, was first approved in the U.S. in 2017 and helped the company's sales grow rapidly. Other medicines, such as Rybelsus, another diabetes drug, have also been significant contributors.
Novo Nordisk's financial results have been on fire through most of this period, leading to its stock delivering a compound annual growth rate (CAGR) of return of 36.8%. So, if you invested $5,000 in Novo Nordisk five years ago, you'd have $18,973 today. That is, Novo Nordisk more than tripled investors' money over the past half-decade.
How does this compare to the broader market? The S&P 500 produced a CAGR of 14.9%, good enough to turn $5,000 into $10,026. That's not bad, but it isn't nearly as impressive as what Novo Nordisk accomplished.
Can the biotech do it again?
Novo Nordisk's prospects through the next five years still look bright. Ozempic is still on fire, while Wegovy for weight loss, first approved in the U.S. in 2021, continues to rise in prominence. Wegovy is technically the same clinical compound as Ozempic, but at a different dosage. With the anti-obesity drug market set to skyrocket through the next five years and beyond, expect Novo Nordisk to benefit. Ozempic should also earn important label expansions, including for treating kidney disease in diabetes patients.
However, these two won't be Novo Nordisk's only growth drivers. The biotech is close to an important approval in the insulin market: insulin icodec, a once-weekly insulin product. Insulin sales have been dead weight on top-line growth lately, partly because of the problems mentioned above, but icodec could help reverse that trend.
Novo Nordisk is also working on a slew of other candidates. One of the company's goals is to expand its lineup well beyond its core areas of diabetes and obesity care, something it should be able to do in the next five years, given its pipeline.
So, can the biotech deliver a CAGR in the neighborhood of 36.8% in the next five years? That's an incredibly high bar, but I believe so. Its most important products should continue driving excellent top-line growth while it earns approval for brand-new ones and records steady clinical progress. However, even if Novo Nordisk doesn't accomplish this lofty feat, it should still produce market-beating returns.
Notice that in the past five years, if the company had recorded a CAGR of half of what it did, it still would have outperformed the S&P 500 by a reasonable margin. The moral of the story: Novo Nordisk is an excellent biotech stock to buy and hold for a while.
