By Tejas Shankar, Equity Analyst
Novo Nordisk (NVO) recently filed a lawsuit against longtime competitor and fellow pharmaceutical giant Eli Lilly (LLY) for false advertising and unfair competition. These two companies have been going at it with one another for years to try to capture the $100 billion obesity market. While the media headlines Eli Lilly as winning this so-called battle, it may be a good buying opportunity to bet on the underdog: Novo Nordisk.
Novo Nordisk is a Danish pharmaceutical giant behind Ozempic & Wegovy. Both are drugs that ignited obesity treatment across the world. Despite this breakthrough the stock has still fallen roughly 65% from its all-time high and is trading at approximately 12x trailing earnings. This is significantly lower than the industry average of 15x and 40x for LLY. The market has Novo priced as a broken pharmaceutical company that is significantly falling behind the 8-ball. Though they have had their fair share of struggles, there is more to the story than what it seems to be on the surface. New CEO Mike Doustdar took the reins just north of a year ago and has been taking significant cost-cutting measures to steer the ship in the right direction. The oral Wegovy pill has cleared 5 million prescriptions in 6 months, while LLY rival oral pill Foundayo just posted an underwhelming $98 million in Q2, contrary to NVO’s $497 million. There are real headwinds to be mindful of despite this promising jump in the oral GLP-1 race. But for a patient investor, Novo at the price it is trading at right now may present itself as an attractive entry opportunity. As investment master Warren Buffet always says, “Price is what you pay, value is what you get.” Novo may just be good value for the money.
Being an investor in Novo Nordisk means owning a small share of a 100-year-old Danish diabetes & obesity drug company. One of their most important drugs is semaglutide, which is an active ingredient in both their Ozempic and Wegovy GLP-1 medications. Semaglutide regulates blood sugar, slows digestion, and reduces appetite, which in turn helps consumers lose weight. Wegovy has had promising results, making GLP- 1 drugs an imperative treatment for obesity. This has created a large potential market for Novo, particularly the millions who fall into the group requiring obesity medical treatment/ medication. Novo’s business is largely structured around injectable GLP-1’s but is pivoting into oral versions to try and jump the competition and be a stand-alone leader. Additionally, as mentioned earlier, they have made prominent strides in achieving that with their jump on Eli Lilly with Wegovy.
An extremely promising fact that drives the company’s bull case is that the oral GLP-1 pill currently makes up only 5% of Novo’s total sales. The vast majority of the market still relies on injectables. If oral adoption of Wegovy follows the historical pattern of other drugs’ transitions from injectables to pills, the growth & future are extremely bright. As a leader in the oral space, it is only a matter of time and maintaining the current market position to see Novo get tenfold returns.
Crunching the Numbers
With a basic understanding of the company and the market, now let’s see what financials reveal. While taking a look at the P&L statement, we can see if the company earned or lost money over a period. Q2 earnings came out roughly a week or two ago, and they were promising. Adjusted sales came in at 78.5 billion DKK or $12.1B; adjusted operating profit was up 11% at constant exchange rates(CER), and adjusted EPS was $0.95, which was 22% higher than the Wall Street estimate of $0.78. Those are solid numbers, but the reported P&L tells a different story. Reported operating profit fell 16% due to 6.3B DKK non-cash write-downs. Very simply, a non-cash write-down is an accounting adjustment that reduces the book value of an asset without any cash leaving the door. In particular, the write-downs were for Monlunabant, which was their experimental obesity drug candidate that didn’t work out. That is why taking a deeper dive into the income statement is imperative, since the headline didn’t tell the full story.
On the other hand, though the income statement is what the media focuses on, the cash flow statement shows the cash that enters and exits the door. Free Cash Flow(FCF) is what the lemonade stand actually keeps after buying lemons, cups, the stand, and paying the staff. It strips away all accounting adjustments such as non-cash write-downs. Novo’s H1 FCF came in at 55.3 billion DKK(~$8.5 billion), which is already at the upper band of its full-year guidance. This contrasts with the P&L statement, which shows an operating profit decline, whereas the cash flow statement shows more cash than full-year guidance in just half a year.
The balance sheet is a snapshot in time of the company’s finances, including what assets and liabilities they possess. Unfortunately, Novo has a current ratio of 0.78, which does raise red flags for investors. Though they have more current liabilities than current assets at the moment, this is common for large pharma companies. What should be considered alongside the current ratio is the debt-to-equity ratio. With a 0.59 D/E, the company may be a better place long-term than what the current ratio may indicate, since 0.59 is a conservative and healthy mark. As Charlie Munger once said, liquor, ladies, and leverage are what drive people broke, and clearly they don’t seem to be suffering from the leverage aspect of his famous quote.
Two ways that companies return cash to shareholders are through buybacks and dividends. Novo launched a 15 billion DKK share buyback program in early 2026. Well-timed buybacks depend on the timing of the buyback. In Novo’s case, they are doing it at ~$47, which is far from their 52-week high of $98.30, which is considered shareholder-friendly. Doing buybacks near all-time highs typically destroys value, and at Novo’s current price they seem to be doing the former rather than the latter.
Dividends are also a strong selling factor for investors, as Novo Nordisk pays a 3.8% annual yield. To understand dividend sustainability, investors look at the payout ratio, in which Novo holds a 45% payout ratio. In simple terms, if they earn 100 dollars, they pay out $45 as dividends and pocket the rest. This is comforting to hear as an investor since if earnings drop and the $100 becomes $75, they still have a buffer to sustainably pay the dividends, for example. Also, dividend growth is north of 26%, placing them at the top of their industry. Their dividend growth in the past 3 years has been 51.6%, 21.3%, and 2.6%, decreasing each year. U.S. inflation has been around 3-4% for the past couple of years, and Novo’s dividend growth doesn’t just keep up with inflation; it is outpacing it. It is also important to mention that the past couple of years have been rocky for the company, and seeing the diligence they have to pull back on increasing their dividend at rates they previously had is mature and promising to see as an investor. It is also worth noting that their dividend yield is way above the industry average of 1.75%. Some notable names in this space paying a dividend remotely close to Novo include Merck at roughly 2.6%, Amgen at ~3.1%, and Amgen at 2.5%. To explain the benefit of compound interest, consider this example. If you put $1,000 in Novo 5 years ago and reinvested the dividends and let the money earn compound interest compared to simple interest(meaning not setting up a dividend reinvestment plan), you would have $1283 compared to $1180. With a larger stake and more time, the returns only increase. Though Novo may not blow the competition away with a massive increase in their stock price, they pay a solid dividend, and with the power of compounding mentioned above, this makes Novo an attractive investment.
The New Order
Mike Doustdar became Novo’s New CEO in August 2025, following in the footsteps of Lars Fruergaard Jørgensen in response to the board asking for new speed and ambition in the rapidly evolving market Novo is in. Mike Doustdar isn’t an outsider, as he has worked his way through the company from an office clerk in 1992 to CEO 33 years later. So far as CEO, he has made aggressive yet decisive moves. He started by restructuring the company, which eliminated roughly 9,000 Novo employees and targeted 8 billion DKK($1.3 billion) in annual savings by the end of this fiscal year. Cutting 11% of your workforce with less than 2 months on the job is a strong statement of intent. He stated at a conference in January that he plans to accelerate the rollout of Wegovy and expand cash-paying channels in the U.S. Despite these impressive strides, he is still cautious and acknowledges stumbles while maintaining conviction in the direction of the company. For investors, the question becomes whether the cost-cutting measures and execution for trials can translate to significant improvements in earnings in 2027 and beyond.
The Valuation is Key
When it comes to valuing the company, we are going to tie it back to the basic P/E, or price-to-earnings ratio. The price-to-earnings ratio is better understood when it is compared to its industry peers and the averages. Novo’s P/E ratio is 14x, whereas the industry average is around 24x, and LLY, their biggest competitor, is nearly triple Novo’s mark, close to 40x. Novo’s historical average P/E when in its heavy growth phases is similar to the range LLY is in, but they have been heavily discounted by the market and trading as if they are a failing company. On the contrary, the bear case of this situation is that the cheap P/E can be a trap door. If 2027 earnings continue to slip, the multiple starts to not look like a bargain that it seems to be right now. The bull case on this is that the market has already overcorrected, pricing in the key risks that were mentioned earlier. Despite all of this, at 14x earnings, the margin of safety is solid compared to its peers.
Novo has a few risks worth mentioning, but there are 4 I would like to highlight. Firstly, Eli Lilly’s injectable GLP-1 has been dominant in comparison to Novo’s injectable and is continuing to grow at a rapid pace. LLY’s GLP-1 generated aggregate quarterly revenue of $14.8 billion in Q2 of 2026. This metric is nearly double Novo’s aggregate GLP-1 sales. Second, pricing pressures from governments are another risk the company and the industry as a whole should be wary of. Additionally, their pipeline and trials have faced certain setbacks and even some outright clinical failures. Finally, with most international companies, this risk must be brought up, and it is currency risk. Novo reports in Danish Kroner(DKK) and earns revenue across the globe. U.S. dollar has been weakening, which results in lower reported DKK revenue; this is out of management’s control but still prevalent.
To sum it all up, Novo’s financials showcase a picture of a strong company that has been generating strong cash, growing its oral business, and making monumental strides with its new CEO. They have just been facing pressure from the government, peers, and other outside factors. The income statement headline may not look pretty due to significant non-cash write-downs, but the cash flow shows that the business is still generating over $8 billion in cash in just the past 6 months. The gap between the headlines that the media focuses on and the reality that the books show is what a smart investor should look to pounce on as a potential investment opportunity, similar to what Novo may fall under.