NOVO-NORDISK A/S-SPONS ADR (NYSE:NVO) Meets Caviar Cruise Standards for Quality Investing

The Caviar Cruise stock screener helps find strong companies ideal for long-term investment, a key part of quality investing. Based on the ideas in Luc Kroeze's The Caviar Formula, this approach focuses on businesses with steady revenue and profit growth, high returns on capital, reasonable debt, and reliable cash flow. The aim is to identify firms with not only past financial success but also lasting competitive edges and pricing strength, traits that help them perform well over time.

One company that fits these strict standards is NOVO-NORDISK A/S-SPONS ADR (NYSE:NVO). The Danish pharmaceutical leader, known for diabetes and obesity care, as well as biopharmaceuticals, shows many traits matching the Caviar Cruise model. Next, we look at how NVO meets the core requirements of the strategy and why it stands as a strong pick for quality investors.

Key Metrics Matching Caviar Cruise Standards

1. Revenue and EBIT Growth

   • The screener looks for at least 5% yearly revenue growth over five years. NVO exceeds this with a 5-year revenue CAGR of 11.94%, showing high demand for its diabetes and obesity treatments.
   • EBIT growth is even stronger at 20.94% CAGR, outpacing revenue growth—a sign of better efficiency and pricing strength. This fits the Caviar Cruise idea that EBIT growth above sales points to scale benefits and competitive edge.

2. High Return on Invested Capital (ROIC)

   • A key measure for quality investors, ROIC shows how well a company uses capital. NVO’s ROIC excluding cash and goodwill is 110%, far above the 15% minimum in the screen. This high return highlights the firm’s skill in reinvesting profits at profitable rates.

3. Solid Profit Quality and Cash Flow Conversion

   • The 5-year average profit quality (FCF/Net Income) is 87.75%, well above the 75% target. This means NVO turns much of its accounting profits into real cash flow—critical for dividends, buybacks, or reinvestment without too much debt.
   • The Debt-to-Free Cash Flow ratio of 1.6 suggests NVO could clear its debt in less than two years using current cash flows, well under the screener’s 5 limit. This financial care lowers risk for long-term investors.

4. Margin Growth and Future Expansion

   • NVO’s operating margin of 46.5% ranks in the top 3% of its sector, with steady gains over time—a sign of pricing strength and cost control.
   • Analysts expect 11.94% yearly revenue growth over the next three years, supporting the firm’s role in fast-growing areas like GLP-1 drugs for obesity.

Fundamental Analysis Overview

A closer look at NVO’s fundamental report shows more strengths:

• Profitability: Outstanding margins (gross: 84.3%, operating: 46.5%) and ROE (75.5%) put NVO in the top tier of pharmaceutical peers.
• Valuation: While the P/E of 19.12 seems high alone, it’s below sector averages when adjusted for growth (PEG ratio) and forward earnings (13.52x).
• Dividend Reliability: A 2.69% yield with 16.6% yearly growth over ten years shows steady returns, though payout sustainability needs watching as earnings grow.

Why NVO Suits Quality Investing

Beyond numbers, NVO has traits quality investors value:

• Global Leadership: Top position in diabetes and obesity care, with growing global presence.
• Innovation-Led Growth: A strong pipeline in metabolic diseases ensures long-term relevance.
• Pricing Strength: High margins suggest little risk from cost pressures or generic rivals.

For investors searching for other firms that meet the Caviar Cruise standards, see the full screen here.

Disclaimer: This article is not investment advice. Do your own research or consult a financial advisor before investing.