Buying Europe's biggest company (after 40% drop)
Hello Novo Nordisk
This newsletter covers my weekly stock purchases.
I’m starting from scratch and kicked things off only last week.
For last week’s buy - the inaugural purchase - I went with what I view as the best company ever.
Perhaps even better than Berkshire, considering its vital role to an entire country (Sweden).
This week, I go with another Nordic great.
Novo Nordisk
Ticker: NOVO-B
Nothern light
I live in Sweden, so I guess it’s natural to be searching for good companies in the Nordics.
But for this one, you don’t have to look hard.
Novo Nordisk is an absolute giant. Europe’s largest by market cap.
And its numbers light up the screen.
75% average return on capital employed (ROCE) over the past 5 years, according to FinChat (an great tool).
75%. Amazing.
ROCE is a big thing for quality investors.
Investors who are looking at a company’s ability to continue growing exponentially.
As opposed to value investors, who focus a bit more on low valuations like P/E and price to book (P/B).
So a high ROCE is awesome. 75% is astronomical.
Other lovely figures coming out of Novo:
—30% return on invested capital (ROIC), another favorite for quality investors
—26% annual revenue growth over the past 3 years (revenue growth is everyone’s favorite)
—85% gross margin (how is that even possible?!)
—Nearly 30% free cash flow
Etc etc.
So we’re talking about a wonderful company. But what about the price?
Down nearly 40%
There’s always the question of price.
Back in June, the price hit 1000 Danish kronor a share - a high.
And back then, I think its P/E was up in the 50s or 60s.
Everyone loved them.
But at the time of my purchase, the share is down 38% in the last six months, according to Yahoo.
So nearly 40%.
That’s a massive drop for such a huge company. Especially with global markets mostly up during that time.
This meant I was able to buy Novo this week at under 600 DKK per share.
And at a reasonable forward P/E of 22x.
Buy one, get one free
There are plenty of reasons for the recent price downturn.
Such as:
—Justifiable doubts about whether it can keep up its sales pace
—Well-placed worries about rising tariffs and trade wars
—Increasing general unease about geo-politics, especially in Europe
—and rational pharma-company worries about patents, competition, side-effects and pipeline for new drugs
All very real concerns.
But look at it like this way.
Novo Nordisk has a number or strong products.
But it has amazing positions in two main areas - diabetes and weight loss.
I don’t know the exact figures, but let’s say one of those two big products makes up about 60% of sales, and the other one 40%.
With the share down close to 40% the past half year, you’re now be getting one of those two big sellers - for free.
Note too that Novo’s big US competitor, Eli Lilly, which doesn’t have as high ROCE, ROIC, free cash flow or sales growth, is quite a bit pricier. (35x forward p/e).
I can also add that, sadly, diabetes and overweight-ness are two big global issues that don’t seem to be going away any time soon.
Even if war breaks out in Europe and Trump grabs Greenland (from Denmark!).
One more thing for those bulls and bears out there.
Admittedly the company could be facing a bit of a near-term bear market.
But prophetically - the Novo Nordisk logo is a bull.
Thanks for reading. Let me know what you think. And follow along.
Joel Sherwood invests each week and writes about what he buys, learns and earns. He’s a former financial journalist for Dow Jones and The Wall Street Journal, and a current bank employee. He lives in Stockholm, Sweden and started the Sherwood Investment Letter in January 2025. Purchases are not recommendations.