The craze for weight-loss drugs is spreading in the US stock market. However, some analysts warn that the craze for weight-loss drugs in the stock market is creating a foam.
Novo Nordisk, the research and development company of weight loss drugs Ozempic and Wegovy, has seen a cumulative increase of about 50% in its stocks listed on the New York Stock Exchange within a year; Lilly, the company behind the drug Mounjaro, saw its stock price rise by 66.37% during the year.
Kepler Cheuvreux analyst David Evans is clearly wary of such stock price fluctuations. He pointed out that the valuation of weight loss drug companies is now too high.
Evans said that his team believes that the weight loss craze is just a foam, and there are no factors driving its continued growth in the near future.
Skyrocketing valuation
In early September, Novo Nordisk's stock price soared due to the popularity of weight loss drugs, replacing LVMH, the world's largest luxury goods company, as the largest company by market value in Europe, interrupting LVMH's two and a half year winning streak.
Goldman Sachs Group predicted this week that the market size of weight loss drugs will reach $100 billion by 2030. JPMorgan Chase emphasized that Lilly and Novo Nordisk are expected to continue dividing the market. These views undoubtedly strongly drove up the stock prices of Novo Nordisk and Lilly.
At the same time, Wal Mart once pointed out in the report that the price behind the bright prospect of weight loss drugs is the weakening of food demand. This report directly caused stock price fluctuations in many food companies, including Coca Cola, and became a laughing stock in Ozempic's spotlight.
However, Evans pointed out that a Novo Nordisk study in August found that Wegovy can effectively reduce the risk of heart disease and stroke, which drove the stock's rapid rise thereafter. But the trend of this stock price requires more proof, and Wegovy's peak sales need to double again to reach over $25 billion to justify its current valuation.
Evans added that Novo's valuation has become excessively high compared to its historical average and peer performance, and this day's valuation requires more performance growth to support.
Jefferies and Societe Generale's analysis also share the same sentiment, warning that Novo Nordisk's stock may face a 40% decline risk.
Last Friday, Novo Nordisk raised its annual sales and profit forecast for the third time, with an expected sales growth of between 32% and 38% this year, and an increase in pre interest and tax profit growth of between 40% and 46%.
The market is still waiting for further financial data, and Novo Nordisk will release its third quarter financial report on November 2nd.