Danish pharma big Novo Nordisk (NYSE:NVO) has been on an absolute tear in 2024. The shares have rocketed over 40% previously 12 months, making it one of many hottest tickets within the inventory market. The corporate has set traders’ pulses racing with its blockbuster weight reduction medicine Wegovy and Ozempic, which have proven they’re probably the true deal.

However after such a stellar run, I reckon the shares may must loosen their belt a notch. Right here’s why I’m not dashing to gobble up any of the shares at present costs.

Bloated valuation?

The shares now sport a price-to-earnings (P/E) ratio of round 46 occasions, which is decidedly chunkier than the typical P/E of about 15 occasions for its friends. The inventory’s price-to-sales (P/S) ratio of 15.7 occasions can be tipping the scales. These multiples recommend the market has already baked in a hefty serving of future progress. This makes me nervous after such a wholesome rally, since any disappointment or errors may result in a serious decline.

So whereas current efficiency has been nothing in need of mouth-watering, with earnings bulking up by 33.7% over the previous 12 months, conserving up this tempo is likely to be a tall order. Analysts expect earnings progress to slim down to about 14% yearly over the approaching years. That’s nonetheless a wholesome determine, however maybe not sufficient to justify the premium price tag.

Provide and regulatory challenges

One other restrict to near-term progress is provide constraints for its well-liked GLP-1 medicine. Whereas this overwhelming demand is actually a pleasant downside to have, it has compelled administration to place launches in some worldwide markets on the backburner.

Finding out these manufacturing bottlenecks will take time and a wholesome injection of capital. In the meantime, rivals like Eli Lilly are racing to deliver new weight reduction surprise medicine to the desk, probably taking a chew out of the first-mover benefit.

As weight problems and diabetes therapies achieve extra customers, they’re additionally attracting extra consideration from regulators. Throughout the pond, Medicare is gearing up to start out haggling over costs, which may hit revenue margins in a serious market.

There are additionally ongoing research poking and prodding at potential uncomfortable side effects of GLP-1 medicine. Whereas the drugs have confirmed to be secure in scientific trials, any whiff of security considerations may put a serious dampener on the occasion.

One other concern is that some insiders have been cashing of their chips just lately. The corporate’s books present an worker consultant director offloaded about £1.1m price of inventory in mid-August. Whereas insider gross sales don’t imply the sky is falling, they’re price chewing over after they occur after such a hearty run-up.

One to look at

Regardless of these potential near-term hiccups, I reckon the agency’s long-term outlook stays as tasty as ever. The worldwide weight problems epidemic isn’t stopping any time quickly, and Novo Nordisk is sitting fairly as a pacesetter on this increasing subject. The corporate additionally has a full plate of latest drug candidates within the pipeline that would gas future progress.

Nevertheless, given the wealthy valuation and potential velocity bumps forward, I believe the shares may wrestle to maintain up their current Usain Bolt impression within the coming months. So whereas Novo Nordisk is likely to be due a breather within the inventory market, I feel it stays a top-notch enterprise that deserves a spot on any savvy Idiot’s watchlist.