Why Novo Nordisk Stock Plummeted Today

Key Points

• Novo Nordisk cut its full-year guidance after sales pressure from U.S. compounders.

• Analysts downgraded the stock following the earnings release, believing the threat is significant.

• The stock now trades at one of its lowest price-to-earnings ratios in years.

• 10 stocks we like better than Novo Nordisk ›

Shares of Novo Nordisk (NYSE: NVO) fell on Wednesday, down 7.2% as of market close. The drop comes as the S&P 500 (SNPINDEX: ^GSPC) and the Nasdaq Composite (NASDAQINDEX: ^IXIC) fell modestly.

The pharmaceutical giant's stock continues to fall after a disappointing earnings release yesterday that included a guidance cut. The news led to downgrades from at least two prominent analysts.

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Novo sees sales weaken

Novo's two GLP-1 drugs, Wegovy and Ozempic, have been blockbusters for the company. The success of its weight loss drugs propelled Novo to become the most valuable company in Europe before competition from "compounders" -- companies that market their own tailor-made versions using its active ingredients -- impacted sales, and its stock declined.

The pressure continues, leading Novo to adjust full-year sales targets downward from a range of 13% to 21% to 8% to 14%. It also cut its operating profit targets from between 16% and 24% to between 10% and 16%.

Analysts were not impressed

Novo's leadership, including its new CEO, struck an optimistic tone, believing that compounders don't present a significant threat. Wall Street analysts seemed to disagree, leading Barclays analysts to downgrade the stock to "equal-weight" from "overweight" and Bank of America analysts to downgrade the stock to "neutral" from "buy."

Image source: Getty Images.

While I do agree that Novo's issues are more significant than leadership indicates, I also think Wall Street may be too cautious here for long-term investors. The company's stock is trading at one of its lowest price-to-earnings ratios (P/E) in nearly 30 years and hasn't traded this low since before 2020. This seems like an opportunity to me.

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Bank of America is an advertising partner of Motley Fool Money. Johnny Rice has no position in any of the stocks mentioned. The Motley Fool recommends Barclays Plc and Novo Nordisk. The Motley Fool has a disclosure policy.