Is It Too Late to Buy Novo Nordisk Stock?

Most investors would love a stock that delivers a 76% return over three years. Novo Nordisk (NYSE: NVO) has done it over the last 12 months.

However, the most crucial factor for evaluating a stock is not its past performance but rather its potential future performance. Is it too late to buy Novo Nordisk stock?

The case for why it is too late to buy Novo Nordisk

One main knock against Novo Nordisk is its steep valuation. The stock trades at over 43 times forward earnings. By comparison, the average forward earnings multiple for the S&P 500 healthcare sector is under 19.

A business can remain strong while its stock is priced at a level that inhibits further significant appreciation. There's a good argument that this is the situation for Novo Nordisk right now.

Sure, Novo Nordisk should be able to deliver solid growth over the next few years. However, the company's primary growth drivers -- type 2 diabetes drug Ozempic and weight loss drug Wegovy -- face increasing competition. Eli Lilly 's Mounjaro/Zepbound franchise, especially, presents a key threat.

Perhaps the biggest concern for Novo Nordisk is that its U.S. patents for semaglutide (which is marketed under the brand names Ozempic, Rybelsus, and Wegovy) expire in early 2026. Look for cheaper biosimilars to quickly enter the market following this patent expiration.

The case for why it isn't too late to buy Novo Nordisk

In June, eight of the nine analysts surveyed by the London Stock Exchange Group ( LSEG ) rated Novo Nordisk stock as a buy or a strong buy. These analysts knew about the stock's premium valuation. They knew about its increasing competition. They were fully aware that semaglutide will lose U.S. patent protection in less than two years.

Why were they still bullish about Novo Nordisk? They also know the company has a promising pipeline that should fuel growth well, even when biosimilar rivals for Ozempic and Wegovy enter the market.

Novo Nordisk hopes to expand the approved indications for semaglutide beyond diabetes and obesity. The company is conducting phase 3 clinical studies evaluating the drug in treating Alzheimer's disease and in metabolic-associated steatohepatitis (MASH), also known as nonalcoholic steatohepatitis (NASH).

In addition, several of its other late-stage candidates have the potential to become blockbuster drugs. Analysts are especially watching CagriSema, a combination of cagrilintide and semaglutide. CagriSema could be the company's ticket to gaining market share in the diabetes and weight loss markets after semaglutide's patent expires.

And the verdict is...

So is it too late to buy Novo Nordisk stock? I don't think it is. My view is that the company's approach of adding new indications for semaglutide while developing successor products, including CagriSema, is a good one.

Valuation metrics that rely on earnings growth projections for only one year in the future don't matter much with Novo Nordisk. The company's growth prospects extend for years to come, with some analysts predicting an obesity drug market and MASH market of $100 billion or more each by 2030.

However, just because it's not too late to buy Novo Nordisk stock doesn't necessarily mean it's the best stock for you to buy right now. In my opinion, other stocks (including several biopharma stocks) offer even more attractive growth prospects and risk-reward propositions.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy .