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Harm Elderman
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I have over 8 years of experience in trading in a variety of products. Ranging from CFD's (contract for differences) to options and equities. I have worked in a variety of financial institutions doing all sorts of work (including algorithmic programming which I enjoyed the most). Nothing... More
  • Novo Nordisk, Ready For Another Boost In 2014? 4 comments
    Jun 9, 2014 2:43 AM | about stocks: NVO

    Novo Nordisk.

    Can it even get better?!

    No stock has ever amazed me as much as Novo Nordisk. As when I was younger and clueless to trading at any level, Novo Nordisk was one of my first acquired stocks years ago and what a stock it was! Immense equity returns year on year. However, the motor this year remains stuck at 16% ytd. Is it fair to expect more the coming months?

    First, let's get the facts straight and see the overall return of Novo Nordisk throughout the last years.

    NVO Chart

    NVO data by YCharts

    Coming from 13,49 back in 2010 and now currently trading at 43.54 in 2014 without having seen any big sell offs over the last few years. That is solid! A relative stable yoy return (besides 2011). This has been a quite staggering overall return for most investors (and for me personally). The dividend has been growing for over 17 years in a row although dividend yield is low but mostly considered a nice dessert after a big meal.

    NVO Chart

    NVO data by YCharts

    What makes Novo Nordisk such a solid company? Net income has been growing year over year while the annual profit margin has been growing nicely in line. Something you would expect and something you would liked to expect as an investor. To add to that, they are fishing in a big pool of costumers which is (unfortunately) growing year on year. Will there be more computers in 5 years? Will there be more nuclear plants in 5 years? Will there be more diabetes patients in 5 years? The latter question is the easiest...

    Debt? Debt ratio's of Novo Nordisk have only been declining in line with their profit figures. I don't worry about this. They have been trying to lower these figures as much as they can.

    Take aside the main insulin product line of Novo Nordisk and focus on the main question whether or not the target group of Novo Nordisk remains equal or will grow in the future. The answer is readily available! According to a study in the June 2014 issue of The Annals of Thoracic Surgery the amount of diabetes patients will grow to 439 million by 2030. The annual report of Novo Nordisk in 2013 alone states an amount of 382 million patients of diabetes today. Bottom line... the amount of diabetes patients will grow! Keeping in mind the 'rule of halves' which states that only 1/4th of the actual group of diabetes patients receives treatment! That leaves 3/4th untreated while the main pool of diabetes patients is growing year by year. This is what you would consider enormous potential for growth.

    Valuation

    So what happens if we relate that to Novo Nordisk? The annual report states that Novo Nordisk treats currently around 24.3 million people worldwide. That's 6 patients out of a 100 people with diabetes. Based on the prospect of Novo being able to treat even double the amount of patients in 5/10 years the current valuation is highly undervalued. If 6/100 is considered a high number than my advice on Novo would be to hold or sell. My interest lies less in the actual performance of the product line of Novo Nordisk but more in the growing pool of diabetes patients. If it won't be the coming product which will hit the market running, it will be the next one.

    Conclusion

    Will it be without risk? No. If the FDA decides that they need more information in regards of the next in line insulin medication NVO will be hit by short term traders. Novo Nordisk has a solid enough buffer to receive a few hits while being able to stand up after every knock from the FDA. Considering the growing pool of diabetes patients and the small amount of patients actually receiving treatment there is still enough ground for Novo to grow even if competitors would increase their market share.

    I'm awaiting 08/07/2014

    Disclosure: The author is long NVO.

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Comments (4)
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  • earthtodan
    , contributor
    Comments (217) | Send Message
     
    I kick myself all the time for not buying before the split.

     

    What happens on 8/7?
    9 Jun, 11:58 AM Reply Like
  • Harm Elderman
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » Next Earnings Date is Aug 07, 2014. I'm not expecting much movement until then.
    9 Jun, 02:23 PM Reply Like
  • Sir Duke
    , contributor
    Comments (141) | Send Message
     
    Thanks for the coverage of NVO. Huge potential here with the growing amount of diabetes patients. One consideration is the 28% dividend withholding tax.. although investors can file a withholding refund with the Danish government.

     

    Will be researching this more.. any thoughts on a good entry point?
    19 Aug, 07:32 PM Reply Like
  • Harm Elderman
    , contributor
    Comments (551) | Send Message
     
    Author’s reply » I will put another instablog out on NVO within 48h.

     

    In regards of the 28% dividend withholding tax, considering their share return, any dividend is comforting. Afin, I'll drop in another Novo Nordisk instablog.
    21 Aug, 08:53 AM Reply Like
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