Novo Nordisk (NVO +1.23%) has been a fantastic, market-beating stock to own for the past decade. Its 10-year return is an incredible 527%, which dwarfs the S&P 500's 182% gain during the same period. But it wasn't until 2022 that the stock really took off. Up until then, its returns were more comparable to that of the broader market.
Now that Novo Nordisk has become one of the largest healthcare stocks in the world, investors may be worried that the level of upside left for the stock may diminish. Can this stock still be a good buy for the next 10 years, or should growth investors look elsewhere?
NYSE: NVO
Key Data Points
Expect a more fiercely competitive weight-loss market
The reason for Novo Nordisk's recent success can be traced back to one product: Ozempic. Even though there are other weight-loss drugs out there today, Ozempic has effectively become synonymous with weight-loss products, even though, ironically, it is approved for diabetes, not weight loss. Patients have simply been taking Ozempic for weight loss because it has helped them lose weight and achieve impressive results, eventually turning it into a popular trend on social media.
A decade from now, that benefit will have likely run its course. There could be other names and other drugs that become more popular in the market by then. More healthcare companies are investing into developing glucagon-like peptide 1 (GLP-1) drugs such as Ozempic and Wegovy, Novo Nordisk's approved weight loss-drug.
Eli Lilly has its own duo of approved diabetes and weight-loss drugs in Mounjaro and Zepbound, which have the potential to combine for $50 billion in annual revenue at their peaks, according to analyst projections. But there could be even more competing products in the future. Swiss healthcare giant Roche recently announced that its weight-loss treatment, CT-388, helped patients lose 18.8% of their body weight after 24 weeks in an early-stage trial.
While it may not chip away at Ozempic or Wegovy's market share today, it could be a formidable rival down the road. Viking Therapeutics' VK2735 is further along and in phase 2 trials, where participants lost an average of 15% of their body weight after 13 weeks. These are just a few examples but there are even more healthcare companies vying for share of the lucrative GLP-1 drug market.
Novo Nordisk's growth rate could be much more modest
Novo Nordisk's sales through the first three months of 2024 totaled 65.3 billion Danish krone ($9.8 billion) and rose 22% year over year. That growth was largely due to its obesity care products, including Wegovy, which soared by a total of 41%.
While there's still a lot of room for more growth for Novo Nordisk, especially as it scales and expands its manufacturing capabilities, investors shouldn't expect this type of growth to hold up in the long run. Novo Nordisk has benefited from having a couple of GLP-1 drugs on the market already, but in a more crowded field, investors the company has averaged in the past.
NVO Revenue (Quarterly YoY Growth) data by YCharts
Is Novo Nordisk a good stock to own over the next 10 years?
Novo Nordisk has been generating strong revenue and profit growth over the years, and it'll need to continue to do that to justify its high valuation. Today, the stock trades at 45 times its trailing earnings and more than 16 times its book value. A lot of the company's future growth is effectively already priced into the stock's current valuation.
As a result, I don't think Novo Nordisk will be able to generate 500% returns over the next 10 years again but I can see the stock doubling and hitting a valuation of $1 trillion. Even if the stock grows by an average of 6% per year over the next 10 years, that will be enough for it to reach that high of a market cap.
Novo Nordisk is still a good buy at its elevated price, but investors should temper their expectations. With more competitors in the GLP-1 market in the future, it won't be as easy for the healthcare stock to generate such high returns in the next 10 years.
