Oversold signal appears! Negative factors gradually cleared, Novo Nordisk A/S Sponsored ADR Class B (NVO.US) falls out of "deep value"?

Novo Nordisk A/S Sponsored ADR Class B (NVO.US) stock price has finally rebounded after experiencing a painful decline from its peak in June 2024, as the adverse factors in the GLP-1 drug sector have eased. This is attributed to an expanded collaboration with numerous traditional healthcare/telehealth companies, and it is expected that performance in the second half of 2025 will gradually improve. Although management has revised down expectations for the 2025 fiscal year, the expanded production capacity of Novo Nordisk A/S Sponsored ADR Class B supports optimistic market expectations, with the stock poised to surpass its current oversold levels. The stock is perceived to be undervalued with a strong cash flow story, sparking an opportunity for deep value investing. The oversold status of Novo Nordisk A/S Sponsored ADR Class B suggests significant upside potential as adverse factors weaken. Currently, Novo Nordisk A/S Sponsored ADR Class B stock price has aggressively retraced from its all-time high last year, with the PE ratio below the 10-year average and lower than the industry average and major competitors. Multiple adverse factors are attributed to intensified competition, slowing revenue growth trends, and management's overcommitment to the CagriSema weight loss target of 25%. A significant factor is the regulatory scrutiny faced by the healthcare industry and the potential impact of the new executive order from President Trump aimed at significantly reducing consumer prescription drug prices. In fact, pricing discussions for Novo Nordisk A/S Sponsored ADR Class B's Wegovy, Ozempic, and Rybelsus by the Centers for Medicare & Medicaid Services will not commence until 2027, as the new U.S. government in early April 2025 decided not to support the inclusion of obesity drugs in Medicare, creating uncertainty in the GLP-1 field. On the other hand, with a clearer outlook for GLP-1 drugs, the growth headwinds for Novo Nordisk A/S Sponsored ADR Class B are likely in the past, largely due to an expanded partnership with Hims & Hers Health (HIMS.US) and an exclusive collaboration with CVS Health Corporation (CVS.US). This does not include the direct-to-consumer (D2C) model through NovoCare pharmacies starting from March 5, 2025, where all dosage specifications of Wegovy will be sold at a discounted price of "monthly $499," similar to Eli Lilly's LillyDirect model, yet priced higher than HIMS' $69 monthly oral product. Combining Novo Nordisk A/S Sponsored ADR Class B's expanded production capacity in the U.S. and assuming a similar supply chain for its 25mg semaglutide oral candidate drug approved by the FDA in early 2026, with the support of a new management team, the stock price bottom may have passed, with performance expected to gradually improve in the second half of 2025. Given the mixed performance in the first quarter of the 2025 fiscal year and adverse factors such as "illicit compounding," Novo Nordisk A/S Sponsored ADR Class B cautiously revised its sales growth expectation for the 2025 fiscal year to a year-over-year increase of 17% and operating profit growth to 20%, which is not surprising. This marks a decrease from the initial expectations of 20% and 23% year-over-year growth given in the earnings call for the fourth quarter of the 2024 fiscal year. Nevertheless, analysts believe the generally expected forward-looking forecasts are still promising, with Novo Nordisk A/S Sponsored ADR Class B expected to achieve a compound annual growth rate of +13.5%/+15.1% by the end of the 2027 fiscal year, achieving outstanding revenue and profit growth. Despite the ongoing decline in GLP-1 prices, the optimistic future outlook is partly attributed to Novo Nordisk A/S Sponsored ADR Class B's increased capital expenditure for expanded production capacity, with efforts over the past three years nearly doubling patient coverage. Despite this, the company generated a significant free cash flow of $1.6 billion (a 91.6% year-over-year increase) in the first quarter of 2025, compared to the $10.25 billion (a 16.6% year-over-year decrease) in the 2024 fiscal year. Management expects a midpoint of $9.42 billion in free cash flow for the 2025 fiscal year (an 8% year-over-year decrease), and more additional production capacity will be coming online from 2025. These reasons are why analysts are not overly concerned about the company's deteriorating balance sheet and continuously rising net debt level of -$11.18 billion (a 25.9% decrease quarter-over-quarter and a 338.4% year-over-year decrease), with the expectation that "the ratio of capital expenditure to revenue will remain in the low double digits" in the coming years, based on a 16.2% observed in the 2024 fiscal year (a 5.1 percentage point increase year-over-year) and a projected 19.1% for the 2025 fiscal year (a 2.9 percentage point increase year-over-year). This is particularly because these efforts may increase the company's profitability in the long term, attributed to the global significant unmet demand, with over 550 million diabetes patients and over 800 million obesity patients, combined with the lengthy treatment cycles lasting several years. These reasons perhaps explain why Novo Nordisk A/S Sponsored ADR Class B is still widely undervalued in the long-term P/E ratio estimation, with a valuation of 18.47 times, lower than the 1-year average of 26.53 times, 5-year average of 31.15 times, and 10-year average of 24.91 times. Compared to direct competitors, Eli Lilly's long-term P/E ratio valuation is 36.04 times, indicating that Novo Nordisk A/S Sponsored ADR Class B is still relatively cheaper here. Despite the downward revision in performance guidance for the 2025 fiscal year, it still offers excellent value opportunities for interested investors. In comparison to Novo Nordisk A/S Sponsored ADR Class B's reasonable future EPS ratio of 1.28 times, a similar conclusion can be drawn, with Eli Lilly's ratio at 1.11 times and the industry average at 1.80 times. These are the significant reasons why Novo Nordisk A/S Sponsored ADR Class B presents substantial investment value with its extremely low valuation. For investors looking to take advantage of a significant uptrend, the low valuation provides an excellent buying opportunity once the adverse impact of GLP-1 gradually diminishes, the company expands its market share in the U.S., and revenue and profit growth accelerate. So, has Beijing Zhidemai Technology acquired Novo Nordisk A/S Sponsored ADR Class B yet? Currently, the bulls have successfully supported the bottom of Novo Nordisk A/S Sponsored ADR Class B stock in April 2025 when the market was at its worst, stabilizing the price at $58. Since then, the stock has rebounded quickly, although it has not breached the previous resistance level of $81, and there seems to be a reversal in momentum in the past week. According to the technical indicators, there has indeed been a reversal in the uptrend of the company's stock price. At the current juncture, the stock appears to be overbought and may experience a moderate pullback in the short term. Based on the long-term adjusted EPS of $3.41 (an 18.4% increase quarter-over-quarter) and the lowest PE ratio in April 2025 of 14.28 times, the trading price of the stock seems to be 51.9% higher than the reasonable value of pessimistic expectations at $48.70, indicating a significant premium. On the other hand, Novo Nordisk A/S Sponsored ADR Class B's valuation has been adjusted upward to a forward PE ratio valuation of 18.47 times, suggesting increasing optimism about its future prospects, which also reflects a similar trend after Eli Lilly clarified uncertainties around GLP-1 compound drugs. These reasons also make the fair value estimate of $84.90 under the basic scenario appear promising. This estimate is based on the final adjustment to the 10-year average PE ratio of 24.91 times (previously 25.27 times, but still discounted compared to Eli Lilly's 36.04 times). Based on the widespread expectation of adjusted EPS for the 2027 fiscal year (at $5.31), the stock currently has a significant upside potential of up to 80%, surpassing its per-share price target based on long-term expectations ($132.20). This further highlights its compelling value proposition as a leader in the GLP-1 field, even though the market size in 2030 is expected to be relatively smaller. Due to the highly optimistic long-term outlook, analysts widely recommend a "buy" rating for the company. However, they also advise investors to observe the stock price movement for a while, as the stock may retreat in the short term to its next support level near $65, implying a 12% drop from the current level. This so-called pullback is not overly bearish, as a significant increase in short selling (a 651.5% year-over-year increase) and this trend are influenced by a market sentiment reversal after the greed sentiment faded before May 2025. Perhaps exercising some patience would be a wiser approach.