Novo Nordisk's ( NVO ) stock price has fallen by about 70% from its peak in 2024 and is now even lower than it was in mid-2021, which was the time when the company's Wegovy weight loss injection GLP-1 was first launched. After this significant decline, Novo Nordisk's current price-to-earnings ratio is around 10 times, while its five-year average is close to 24 times.

If you are a long-term investor, you might consider following the company's own actions and positioning on Novo Nordisk. As will be explained below, its future is likely to be more promising than its recent performance.

Novo Nordisk: Indeed, we've stumbled upon pitfalls before.

Wall Street's concerns about Novo Nordisk are well-founded. Although Novo Nordisk was the first to bring GLP-1 weight-loss drugs to market, it quickly found itself in a passive position after Eli Lilly launched a similar GLP-1 product. There are two main issues: First, Eli Lilly's GLP-1 weight-loss drugs are more effective, and doctors tend to prescribe them over Novo Nordisk's products. Second, Novo Nordisk's production capacity could not keep up with demand, allowing generic versions to enter the U.S. market ahead of schedule. In other words, even though the same drugs are being used on the market, the profits may not necessarily flow to Novo Nordisk.

But from another perspective: the weight loss market is huge enough to accommodate multiple leading players; being second in a growing industry isn't necessarily a bad thing. In terms of production capacity, Novo Nordisk seems to have learned from its mistakes. It's worth noting that they are also the first pharmaceutical company to launch an oral GLP-1 formulation, and this time the company plans to take strict measures to prevent generic drugs from entering the market prematurely.

Novo Nordisk's New Strategic Focus

Oral consumption of GLP-1 products is of great significance, as it represents a shift in business model: from selling small quantities of high-priced drugs to mass-selling low-priced formulations. In simple terms, the company has identified the scale of the weight loss market and has shifted to a growth model driven by sales volume. This transformation is currently weighing on financial reports, but if demand and expectations remain strong, the increase in sales volume can certainly offset the impact of declining unit prices.

The pharmaceutical industry is highly dependent on research and development, and competition is fierce. However, Novo Nordisk has a solid track record of innovation. The company is currently working on the development of a new generation of GLP-1, and management has high hopes for this new drug. There is a chance for them to reclaim the leading position in the market; even if they don't succeed, being second is not bad at all – Pepsi has been ranked behind Coca-Cola for decades and has still continued to generate substantial profits for its shareholders.

At the same time, Novo Nordisk has launched a $2.2 billion stock repurchase program, and the funds have already been allocated, indicating that the board of directors believes the current stock price reflects value. Considering its valuation level, as well as the fact that the stock price is now below the level before the launch of GLP-1 weight-loss drug, it seems that the market may be throwing away the baby with the bathwater (excessively pessimistic and wrongly penalizing quality assets).

Investing in Novo Nordisk requires long-term thinking.

The problem is that this new model of high volume sales requires time to yield results. However, based on the current valuation, investors who buy into this innovative pharmaceutical company during a period of market panic are likely to achieve decent returns in the long term. Before a reversal in performance, investors can also receive dividends higher than the market average: a dividend yield of 4.6% and a payout ratio of 33%. With a solid foundation, this also suggests that the market's negative expectations about the company may be somewhat overblown.