Novo Nordisk (NYSE:NVO) Identified as a 'Decent Value' Stock with Strong Fundamentals

The search for undervalued companies is a foundation of disciplined, long-term investing. One methodical approach uses filters to find stocks that seem fundamentally inexpensive based on numerical measures, but which are not inexpensive for bad reasons, such as weak financial condition or failing profitability. This "decent value" method looks for companies with a good valuation score, meaning they trade at a lower price compared to their industry or the wider market, while also keeping acceptable scores in profitability, financial condition, and growth. The aim is to find possible chances where the market may be missing a company's basic strength, presenting a good risk-reward balance for investors willing to wait.

Novo Nordisk A/S-Spons ADR (NYSE:NVO) is a worldwide healthcare company chiefly centered on diabetes and obesity care, with a large biopharmaceuticals unit. A recent filter for "decent value" stocks, which emphasizes good prices together with basic strength, has identified NVO as a candidate for more review. The company's full basic analysis report, found here, gives the specific numbers supporting this view.

Valuation: A Lower Price Compared to Others

The main attraction for a value-focused filter is a stock's valuation score, and Novo Nordisk gets a 7 out of 10 in this area. This score implies the stock is priced at levels that are interesting compared to its financial results and industry position.

• Price-to-Earnings (P/E) Ratio: At 13.14, NVO's P/E ratio is seen as reasonably priced on its own. However, the comparison matters. This ratio is lower than almost 88% of similar companies in the pharmaceuticals industry, where the average P/E is above 33. Also, it is at a marked discount to the S&P 500's average P/E of 26.38.
• Forward P/E and Enterprise Value: The forward P/E of 12.83 and the Enterprise Value to EBITDA multiple also show relative low pricing, with NVO being less expensive than about 84% and 90% of its industry rivals, in order.
• Accounting for Growth: It is useful to see that the stock's high PEG ratio, which changes the P/E for estimated growth, points to a higher price when growth is included. This is weighed in the total score by Novo Nordisk's "excellent profitability," which can support a higher earnings multiple.

For a value investor, these numbers show the market is not completely valuing Novo Nordisk's earnings capacity against its sector, possibly giving a buffer.

Profitability: Excellent Business Performance

A low price is only appealing if the company is fundamentally healthy. Novo Nordisk's profitability score is a high 9 out of 10, giving good reason for its business quality. This high score is important for the method, as it makes sure the low price is not a sign of worsening operations.

• High Returns: The company produces excellent returns on its assets (20.26%) and equity (61.08%), doing better than over 97% and 98% of industry peers. Its Return on Invested Capital (ROIC) of 38.03% is also with the best in the field.
• Strong Margins: Novo Nordisk keeps notable margins, with a Profit Margin of 32.88% and an Operating Margin of 42.03%, both in the top group of the industry. A Gross Margin above 82% further shows its pricing ability and operational effectiveness.
• Upward Trend: Importantly, both its Profit Margin and Operating Margin have gotten better in recent years, showing continued operational quality.

This degree of profitability indicates a lasting competitive edge, a main feature value investors look for to ensure a company's inherent worth is steady or increasing.

Financial Health: A Varied but Controllable View

Financial health, with a score of 6, is the part with some seen issues, but the total view stays acceptable. A sound balance sheet is important for a value stock to manage economic changes without risking its business.

• Solvency is Good: The company has an Altman-Z score of 4.17, showing low short-term bankruptcy risk and putting it in the stronger half of its industry. Its Debt to Free Cash Flow ratio of 1.66 is very good, meaning it could pay off all debt with under two years of cash flow.
• Liquidity Numbers Cause Notice: The main points of care are liquidity ratios. A Current Ratio of 0.78 and a Quick Ratio of 0.57 are below common levels and rank low within the industry, hinting at possible issues in meeting immediate bills.
• Comparison Matters: The report usefully states that given Novo Nordisk's "very good solvency and profitability," these liquidity ratios may not point to immediate difficulty but rather should be judged against the details of its business model and cash cycle.

While the liquidity numbers deserve focus, the good solvency and very strong cash creation give a significant cushion, keeping the total health score at a satisfactory level for this filtering method.

Growth: Steady, Though Slowing

With a growth score of 5, Novo Nordisk displays a decent, if not rapid, growth picture. For a value stock, steady growth helps support the idea that inherent worth will rise over time.

• Good Past Results: Revenue growth has been strong, rising by 16.64% over the last year and averaging almost 19% each year over recent years. Earnings Per Share (EPS) grew by 10.05% last year.
• Future Estimates: Analysts think growth will slow, with future yearly EPS and Revenue growth estimated near 7%. The report states that the revenue growth rate is thought to be slower in the next years than it has been in the past.

This move to a more settled, but still positive, growth stage is common for big, set industry leaders and can sometimes be a reason for market low pricing as investor interest moves to newer, quicker-growing companies.

Conclusion

Novo Nordisk offers an interesting example for a "decent value" filtering method. It trades at a clear discount to its pharmaceutical peers and the wider market, as shown by its valuation score. This discount is present together with top-tier profitability and satisfactory, though not perfect, financial health. The company's growth, while slowing from recent levels, stays positive. This mix, a low price for a very profitable and financially sound business, is exactly what this investment method tries to find. It implies the market may be pricing too low a leading healthcare company with a lasting market place.

For investors wanting to review other stocks that fit similar standards of good price paired with decent basics, more study can be done using the Decent Value Stocks filter on ChartMill.

Disclaimer: This article is for information only and is not financial advice, a suggestion, or an offer or request to buy or sell any securities. The information shown is based on given data and should not be the only ground for an investment choice. Investors should do their own separate research and talk with a qualified financial advisor before making any investment decisions. Past results are not a guide for future results.