Novo Nordisk (NYSE: NVO), the Danish company behind popular diabetes drug Ozempic and anti-obesity medication Wegovy, has become one of the most valuable businesses in the world. Worth approximately $580 billion already, the company has achieved considerable gains for its shareholders. In five years, the stock has risen by 400%.
What's encouraging for investors is that there are still multiple growth catalysts that may push the stock's value up even higher in the. The growth story is by no means over for Novo Nordisk. Given its strong fundamentals, its highly valued assets in Ozempic and Wegovy, and more growth down the road, is this the best healthcare stock you can buy today?
Novo Nordisk has a spectacular business
What I really like about Novo Nordisk is that while other companies become overly diverse, its focus is on weight loss and diabetes. Those are two of the most important areas of healthcare. And there's some overlap, as you can see from Ozempic being used off-label for weight loss. A drug that's helpful in one area could help in another as well.
By not overcomplicating its business, Novo Nordisk is able to focus on high-growth areas. And that can help drive efficiency and strong, long-term growth.
In 2023, the company generated revenue totaling 232.3 billion Danish krone ($34.8 billion), and 93% of the top line was related to diabetes and obesity care. The remaining 17.2 billion Danish krone ($2.6 billion) came from its rare disease segment. When excluding the impact of foreign currency, its diabetes and obesity care business grew at a rate of 42%, with much of that growth due primarily to Ozempic and Wegovy.
Not only is Novo Nordisk generating impressive revenue growth, but it earns fantastic gross margins. In each of the past five years, gross margins have been north of 83%. That's a terrific margin, which can make it easy for a business to post a profit. Novo Nordisk's profit margin was 36% this past year, which is the highest it has been in the past five years, but during that stretch, the profit margin hasn't dipped below 31%.
High revenue growth and excellent profit margins are two solid reasons why this is already a great investment. But there are even more reasons to remain bullish on the stock if you're focused on the long haul.
More catalysts could be coming for Novo Nordisk
Novo Nordisk is doing exceptionally well today, but the business is by no means close to hitting a peak anytime soon; there's just too much growth potential still out there. One example is through expanding its operations. A big issue with highly popular drugs such as Ozempic and Wegovy is that there have been shortages, with supply simply not being able to keep up with demand.
The company, however, is investing in increasing its production capacity. Last year, it announced plans to spend $6 billion to build new facilities in Denmark. It will be a multiyear investment that is expected to take until 2029 before all the facilities are completed. And earlier this year, Novo Holdings, which is Novo Nordisk's parent company, announced that it will be buying drug manufacturer Catalent for $16.5 billion. The plan is that Novo Nordisk will then purchase three manufacturing sites from its parent company for $11 billion.
By adding capacity, Novo Nordisk will be in a better position to meet what may be an even further surge in demand for its products fueled by studies showing its drugs can be useful for more than just their originally approved indications.
In March, the Food and Drug Administration (FDA) approved Wegovy as a treatment to help reduce the risk of heart attack or stroke in obese and overweight adults. Ozempic has shown in a clinical trial that it can help reduce the risk that kidney disease progresses. It hasn't been approved for a related indication just yet, but as more studies unveil other potential areas where these drugs can be effective, the FDA could approve additional indications. And that can help increase demand.
It's not just Ozempic and Wegovy to be bullish about, either. Another drug Novo Nordisk investors should familiarize themselves with is amycretin. It's in early-stage trials, but its results have been encouraging thus far. It's a pill that has shown it can help patients lose weight and potentially be more effective than Wegovy as a weight loss medication. It's still early -- this is based on phase 1 trial data -- but this is another drug that investors should keep a careful watch on. If amycretin becomes the real deal, then Novo Nordisk may have another solid, revenue-generating asset in its portfolio.
For which investors is Novo Nordisk the best healthcare stock to buy?
If your focus is on finding a good, growth-oriented healthcare stock you can buy for the long term that doesn't put your portfolio at much risk, then I think Novo Nordisk is the best healthcare stock right now. Rival Eli Lilly is a possible alternative, but Novo Nordisk is cheaper (it trades at 48 times earnings versus more than 130 for Eli Lilly), and it's not as diversified and complex in its operations. Having that leaner, more concentrated focus on obesity and diabetes could give Novo Nordisk more upside in the long run.
Should you invest $1,000 in Novo Nordisk right now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
