Investors are constantly in the quest for the intrinsic value of stocks to make informed investment decisions. One such stock under the lens today is Novo Nordisk A/S (NVO, Financial), which has seen a daily gain of 1.77% and a commendable 3-month gain of 23.58%. The stock's Earnings Per Share (EPS) (EPS) stands at 4.22. But the question remains: is the stock modestly overvalued? This article aims to answer this question by providing a comprehensive valuation analysis of Novo Nordisk A/S (NVO). So, let's dive in.
Company Snapshot
Novo Nordisk A/S, a Denmark-based company, is a global leader in diabetes care, holding about one-third of the global branded diabetes treatment market. The company manufactures and markets a variety of human and modern insulins, injectable diabetes treatments such as GLP-1 therapy, oral antidiabetic agents, and obesity treatments. Additionally, it has a biopharmaceutical segment (constituting roughly 10% of revenue) specializing in protein therapies for hemophilia and other disorders. Comparing the stock price of $194.64 to the GF Value of $160.13, it appears that the stock might be modestly overvalued.
Understanding GF Value
The GF Value is a unique valuation model that calculates the intrinsic value of a stock based on three key factors: historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Novo Nordisk A/S (NVO, Financial) Valuation
Based on the GF Value, Novo Nordisk A/S (NVO) appears to be modestly overvalued. The GF Value Line suggests that the stock is trading above its fair value, implying that the future return of its stock is likely to be lower than its business growth.
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Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's critical to review a company's financial strength before deciding to buy shares. Novo Nordisk A/S has a cash-to-debt ratio of 1.42, which ranks worse than 75.23% of 1518 companies in the Biotechnology industry. Based on this, GuruFocus ranks Novo Nordisk A/S's financial strength as 7 out of 10, suggesting fair balance sheet.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Novo Nordisk A/S has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $28.50 billion and Earnings Per Share (EPS) of $4.22. Its operating margin is 42.8%, which ranks better than 97.08% of 1029 companies in the Biotechnology industry. Overall, the profitability of Novo Nordisk A/S is ranked 10 out of 10, which indicates strong profitability.
Growth is probably one of the most important factors in the valuation of a company. Novo Nordisk A/S's 3-year average revenue growth rate is better than 61.02% of 762 companies in the Biotechnology industry. Novo Nordisk A/S's 3-year average EBITDA growth rate is 13.9%, which ranks better than 59.24% of 1256 companies in the Biotechnology industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Novo Nordisk A/S's ROIC was 28.95, while its WACC came in at 8.45.
Conclusion
In conclusion, the stock of Novo Nordisk A/S (NVO, Financial) appears to be modestly overvalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 59.24% of 1256 companies in the Biotechnology industry. To learn more about Novo Nordisk A/S stock, you can check out its 30-Year Financials here.
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