How much longer can weight loss pills remain popular?
There are voices on Wall Street that believe Novo Nordisk is overvalued! But it cannot be stopped in the short term. Some analysts are even more pessimistic, believing that Novo Nordisk may fall by about 40%.
How long can weight loss drugs remain popular?
An analyst from Kepler Cheuvreux, a securities firm, believes that the stock market's frenzy over weight loss drugs is creating a bubble. Some analysts tracked by Bloomberg are even more pessimistic, with analysts from Jefferies and Societe Generale suggesting that Novo Nordisk's stock could potentially drop by about 40%.
Driven by the popularity of "miracle weight loss drugs" like Wegovy, the stock price of Novo Nordisk, the manufacturer of Ozempic, has risen nearly 50% this year. However, David Evans from Kepler Cheuvreux argues that the current valuation is already "very high".
However, Evans believes that there are no short-term factors that can stop the surge in Novo Nordisk's stock price, and he reiterated his hold rating on the company in a recent report, stating:
"We believe that the weight loss drug frenzy is a bubble, but what will burst it? We believe that there are no driving factors in the short term."
Evans' view serves as a warning for Novo Nordisk's stock price. Last month, Novo Nordisk surpassed luxury goods giant LVMH to become the highest-valued listed company in Europe. Goldman Sachs analysts predicted this week that the weight loss drug market will reach $100 billion by 2030.
Since August, Novo Nordisk's stock price has risen sharply, when a study found that Wegovy reduces the risk of heart attacks and strokes. The current stock price indicates that people generally believe that the drug's sales need to double to over $25 billion to justify the stock price trend.
According to Bloomberg data, Novo Nordisk's expected price-to-earnings ratio is about 34 times, which is twice the average price-to-earnings ratio of the European Stoxx 600 Healthcare Index constituents.
Evans stated:
"Possibly due to its unique appeal, Novo Nordisk's valuation has become very high compared to historical averages and peers. A sky-high valuation requires greater profit growth."