Is Novo Nordisk’s Recent 53% Price Drop a Market Overreaction?

• Wondering if Novo Nordisk is priced fairly, or if there could be a value play just waiting to be found? Let’s take a closer look at what’s been happening with the stock and what that could mean for savvy investors.
• Recently, Novo Nordisk’s share price has experienced some notable swings. The stock is up 2.3% over the past week, but down 5.2% this month. For long-term holders, the stock has surged 52.7% over five years, even though the past year has seen a sharp 53.5% drop.
• Much of this price action can be traced to high-profile news stories. The company has continued to dominate headlines with major pharmaceutical breakthroughs, and regulators have taken stances that both stoke optimism and introduce new uncertainties. These factors are fueling market debates over just how much future growth is already priced in.
• When it comes to a valuation check-up, Novo Nordisk scores a 5 out of 6 on our valuation score, suggesting it is undervalued on most major metrics. That is just the beginning; we will explore the numbers behind this score and, later on, reveal an even smarter way to look at valuation.

Find out why Novo Nordisk's -53.5% return over the last year is lagging behind its peers.

Approach 1: Novo Nordisk Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's value by projecting its future cash flows and then discounting them back to today's value. This approach helps investors gauge what a business is truly worth, looking beyond short-term market movements.

For Novo Nordisk, the most recent Free Cash Flow was DKK 67.6 billion. Analyst forecasts suggest steady growth, with cash flow projected to reach DKK 127.2 billion by 2029. Simply Wall St’s methodology extrapolates future years even further. All cash flow figures are presented in Danish Krone (DKK) to align with the company's reporting currency.

While analysts provide estimates for the next five years, projections beyond that are based on historical growth trends and internal assumptions. This broad look at the company’s future cash generation power forms the basis for estimating intrinsic value.

The DCF model calculates Novo Nordisk’s fair value per share at $154.41. With the stock currently trading at a 68.5% discount to this estimated intrinsic value, the data suggests the shares are meaningfully undervalued according to future cash flow projections.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Novo Nordisk is undervalued by 68.5%. Track this in your watchlist or portfolio, or discover 923 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Novo Nordisk.

Approach 2: Novo Nordisk Price vs Earnings

The Price-to-Earnings (PE) ratio is a popular way to value profitable companies because it directly ties a company’s share price to its current earnings. For established businesses generating consistent profits, such as Novo Nordisk, the PE ratio reveals how much investors are willing to pay for each dollar of earnings. This offers a clear snapshot of market sentiment.

What counts as a “normal” or “fair” PE ratio is shaped by expectations of future growth and the specific risks the company faces. Higher growth expectations can justify a higher PE, while elevated risks or uncertainty would typically demand a lower ratio. Comparing Novo Nordisk’s current PE to common benchmarks can help put its valuation in perspective.

Right now, Novo Nordisk’s PE ratio stands at 13.31x. For context, the average PE for its pharmaceutical industry peers is 16.27x, and the broader industry sits at 20.57x. While Novo Nordisk’s ratio is below these reference points, that alone does not guarantee undervaluation, as context matters.

This is where Simply Wall St’s “Fair Ratio” comes in. The Fair Ratio, which is 33.01x in this case, is a proprietary figure calculated by considering factors such as Novo Nordisk’s earnings growth outlook, industry characteristics, profit margin, market cap, and risk profile. Unlike a simple peer or industry average, the Fair Ratio tailors the valuation benchmark specifically to Novo Nordisk’s situation, making it a more accurate yardstick for fair value.

When Novo Nordisk’s current PE of 13.31x is compared to its Fair Ratio of 33.01x, there is a sizable discount. This suggests the stock is undervalued on earnings-based metrics, offering potential upside for investors seeking value.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1437 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Novo Nordisk Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. Narratives are Simply Wall St’s powerful, accessible tool that lets any investor connect the company’s story with the numbers. Your perspective shapes fair value by supplying your own predictions around future revenue, profits, and margins.

Instead of relying solely on standard ratios or broad market analysis, Narratives help you tell the full story. You can tie Novo Nordisk’s latest news, competitive moves, or industry forecasts directly to your assumptions, instantly updating your view of fair value as events unfold. Narratives are always available on Simply Wall St's Community page, which is used by millions, making tracking different perspectives as easy as reading the news.

This means you can decide when to buy, hold, or sell by directly comparing your dynamic Fair Value to the current share price, all while seeing how other investors’ stories stack up. For Novo Nordisk, for example, some investors’ Narratives reflect a fair value below $80 per share amid competitive risks, while others project $160 driven by pipeline breakthroughs and robust growth expectations.

Do you think there's more to the story for Novo Nordisk? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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