Novo Nordisk (NYSE: NVO) recently posted its latest earnings numbers, and they fell short of Wall Street's expectations. Investors had high hopes for the company, which is known for its popular diabetes treatment, Ozempic, and its weight loss drug, Wegovy. But they may be having second thoughts about its growth prospects and its ability to be a continually top-performing investment in light of its recent performance.
Could this recent earnings miss be a sign of trouble to come for the stock, or is it likely just a bad quarter and not much of a reason for investors to worry?
Profits underwhelm, management reduces guidance
Last week, Novo Nordisk reported its second-quarter results, which ended on June 30. The company achieved good year-over-year growth of 25% with net sales rising to 68.1 billion Danish krone ($9.9 billion) but there was much more modest growth on the bottom line, which increased by 3% to 20.1 billion Danish krone ($2.9 billion). Analysts had been expecting the company's profit to come in around 20.9 billion Danish krone.
It's a slight miss on the bottom line, and a key reason is a sharp 127% increase in research and development costs, which included an impairment charge worth 5.7 billion Danish krone related to the company's kidney disease drug, ocedurenone. In a recent phase 3 clinical trial, ocedurenone failed to meet a primary endpoint.
As a result, the company also adjusted its guidance for operating profit to grow at a rate of 20% to 28%, which is down from the previous range of 22% to 30%.
But sales guidance gets an upgrade
It wasn't all bad news for Novo Nordisk investors this past quarter. The company did raise its expectations for sales growth for the year. Previously, Novo Nordisk was projecting sales growth to fall within a range of 19% to 27% and now it is projecting growth between 22% and 28% -- when factoring out the impact of foreign exchange. CEO Lars Fruergaard Jørgensen says that the company is "very confident in our ability to scale and also supply patients and deliver now stronger growth for the second half."
The first half has been a strong one for the business as top-selling drugs Ozempic and Wegovy have grown by 36% and 74%, respectively, at constant exchange rates. And as Novo Nordisk continues to invest in more capacity and rolls out the treatments to more markets and patients, the growth opportunities will continue to become more plentiful for the business and these two drugs.
Nothing to really worry about
A miss on earnings and a lower forecast sounds worse than it is for Novo Nordisk. A significant impairment charge has weighed on its numbers and while that isn't great news, it's hardly a reason to turn bearish on what remains an exceptional growth stock . Not every product that a healthcare company develops will be a winner, which is why assets such as Ozempic and Wegovy are so special. When a company can develop such impressive blockbuster drugs , they can be game changers for its operations for years to come.
If investors dump Novo Nordisk stock due to this earnings miss, you shouldn't hesitate to take up the opportunity to invest in this tremendous company at a reduced price. Novo Nordisk has a bright future ahead and any sort of softness in its share price could be short-lived, which is why buying it at a reduced valuation could make for an excellent move. Although the stock has stumbled recently, it's still up 29% this year. And there could still be great returns ahead for investors who buy the stock today.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy .
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