JPMorgan Predicted Strong Wegovy Pill Sales (and Was Right). Is Novo Nordisk Stock a Buy Now?

Novo Nordisk (NVO +0.96%) received a vote of confidence from JPMorgan Chase‘s (JPM +0.39%) analyst ahead of the drug maker’s earnings report. The analyst was expecting strong Wegovy pill sales, and Novo Nordisk lived up to that expectation, having now racked up more than eight million cumulative prescriptions since the GLP-1 pill’s launch. But is that enough to make the stock a buy? Here’s how you can decide.

Novo Nordisk’s GLP-1 pill is doing very well

Novo Nordisk was the first to market with a GLP-1 weight-loss shot, effectively creating a new drug category. And the opportunity is massive, given the prevalence of obesity worldwide. However, people don’t really like to take shots. So it was important that Novo Nordisk was also the first to market with a GLP-1 pill. The launch of the Wegovy pill has been even more successful than the launch of the company’s Wegovy shot.

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That’s great news, but investors have to view it within the context of the company’s broader business plan. That’s highlighted by the fact that Novo Nordisk’s operating profit fell 9% year over year in the quarter. This wasn’t a surprise; it was part of the plan. Novo Nordisk is using the pill launch to shift toward a high-volume/low-price model.

Right now, the low-price piece of the puzzle is depressing revenues and earnings. That’s happening despite strong adoption of the Wegovy pill in what the company is calling a transition year. Strong results for the Wegovy pill hint that the plan is working, but the success of the plan won’t be fully clear until the company’s profits start to respond as well. And it is important to remember that Novo Nordisk doesn’t operate in a vacuum. Key competitor Eli Lilly (LLY +0.35%) already has its own GLP-1 pill on the market, and additional competitors are waiting in the wings with their own GLP-1 drugs as well.

Novo Nordisk: A solid risk/reward balance

Thus, truly conservative investors may want to wait for more evidence. But Novo Nordisk’s stock has fallen 70% from its 2024 peak. The 4.4% dividend yield is well above the pharmaceutical average of around 1.3% and backed by a strong 33% payout ratio. The stock’s price-to-sales, price-to-earnings, and price-to-book ratios are all below their five-year averages. If you are an income and/or value investor, the stock looks attractive right now. And given that the strong Wegovy pill sales suggest the company’s model shift is progressing as planned, it looks like the risk/reward balance is tilted toward reward.