NVO is a buy despite lowered valuation and conviction; significant upside remains.

Novo Nordisk informed investors that it will increase its revenue at a medium single-digit rate through 2030. It also stated that it will increase the number of patients it serves to more than 60 million, up from about 46.5 million currently.

Despite these strong expectations, investors were not impressed with Novo Nordisk's performance. The stock has fallen by more than 25% since the beginning of 2026. So, does all this make Novo a buying opportunity when its price drops?

Novo Nordisk's revenues have increased significantly in recent years as a result of its weight loss treatments . With revenues of $51.5 billion over the past twelve months, roughly three times or more than what it achieved in 2017,

investors had grown accustomed to such strong growth, and when management projected only average single-digit growth from now until 2030, there was a sense of disappointment.

Investors had hoped for faster growth from Novo given its strong position in the weight loss market. However, the administration explained that losing the patent for the weight loss treatment in one of its categories would likely result in a loss of some of its market power.

Management is currently focused on cost reduction efforts. They have already eliminated around 12,000 jobs in 2026, and management hopes to reinvest those savings in research and development.

The operating profit margin is undoubtedly profitable at 45%, but it has fluctuated in this range between 40% and 47% over the past decade, and has recently experienced even greater volatility.

Investors were not reassured by the fact that the company's operating profit margin was on a stable and upward trajectory.

Another concern for investors is the low return on invested capital for the company. As a pharmaceutical company, the return on invested capital is of utmost importance. You want to see a management team capable of investing in research and development, resulting in products and services that generate enough profit to cover those costs.

Despite the decrease in the number, the absolute level is still very strong. At 37%, it is more than three times, and closer to four times, the average weighted cost of capital of the company.

So, the level is excellent, but what is worrying is the downward trend.

How long will this decline continue? How far will it go? These are the questions investors ask when they see a trend like this that has lasted not just for a year or two, but for most of the past decade, where the return on invested capital was around 80-90% and has fallen to the high thirties .

This is despite the fact that, among a handful of its competitors, including Pfizer and Eli Lilly, Novo Nordisk has spent the least on research and development as a percentage of revenue over the past decade.

So, it's not that they overinvest or overspend, and that's why their returns on invested capital are low.

In fact, it has been in third place for most of the past decade. If we look at the average , it is the lowest over the past decade compared to Eli Lilly and Pfizer. Looking at the latest figure of 15.7%, it is the lowest among its biggest competitors, so the company is not spending much.

That's not the problem. That doesn't seem to be the problem. It seems more related to the results of those investments and perhaps even to the effectiveness of those investments.

Now, across the entire industry, the use of artificial intelligence will play a crucial role in pharmaceutical development. This new technology, artificial intelligence, promises to reduce the costs of developing new treatments, and whichever companies or the industry as a whole use this technology, it could lead to increased value for every dollar spent on research and development.

But this remains to be seen, as we have yet to see progress in the effectiveness of artificial intelligence leading to these kinds of improvements in pharmaceutical development.

So, given those headwinds I mentioned , it's not surprising to see Novo Nordisk trading at its lowest valuation in years. Based on the forward price-to-earnings ratio , Novo is trading at 11.3.

This is close to the cheapest price this stock has traded at according to this metric going back a very long time.

I have also updated my Novo Nordisk discounted cash flow model today due to the updated outlook from management. I have revised this company's free cash flow for the coming years downward.

I was one of the analysts who predicted stronger growth for Novo, so when the management team presented their forecasts, they were lower than I had estimated. Therefore, I adjusted those numbers downwards.

In addition, this stock was more volatile and risky than usual, so I raised the stock's beta measurement because I assume and estimate that the risks in the next three to five years are higher than the risks in the past three to five years.

Accordingly, I modified the "beta" by raising it to 0.75.

Overall, these adjustments had the effect of lowering my estimate of Novo's fair value. I now value the company at approximately $64.50. Now, the market price is still much lower than that at $38.36.

It is approaching its lowest level in 52 weeks at $35. I have calculated the potential for Novo Nordisk's stock to rise by 68% over the next twelve to eighteen months .

I last evaluated Novo Nordisk on August 7, and rated the stock as a buy opportunity. In fact, I have rated Novo stock as a buy opportunity throughout 2026, and throughout 2025, and I believe that goes beyond that.

Therefore, I have been disappointed with Novo's year-to-date performance in 2026. However, even after lowering my estimates, Novo Nordisk stock still looks like a buying opportunity and I will be updating this rating today.

But I will lower my level of conviction. My confidence in Novo Nordisk is diminishing as performance continues to be disappointing. Therefore, I am lowering my confidence in this stock to a low level through the rating.