We last wrote about Novo Nordisk A/S Class B (CSE:) less than six months ago, on February 20th. The stock was trading just below DKK 600 per share and management still expected revenue to grow between 16% and 24% in 2025. In addition, the company’s dominant position in the diabetes market and the immense potential of its weight-loss blockbuster drugs made many investors think the stock was a bargain. Elliott Wave analysis indicated otherwise.
The reason we were skeptical despite the stock’s 40% drop from over DKK 1000 was the chart above. It revealed a five-wave impulse pattern, marked as wave (a). According to the theory, impulses point in the direction of the larger trend. Therefore, we thought that investors should brace for more weakness in wave (c) once the corrective recovery in wave (b) was over.
Five and a half months later now, Novo Nordisk (NYSE:) has a new CEO following two downward revenue growth revisions. The company now expects sales to rise by 8% to 14% and its share price has been cut in half. Are the bears finally done and is the stock a bargain now?
We thought wave (b) could reach the resistance of wave 4 near DKK 800, before the bears return. The best it did was DKK 675, however, and we now know why. Because it wasn’t wave 4 and it wasn’t wave (b). Instead, what we thought of as wave 4 was actually wave 2 of (3), which was extending. What we thought was wave (b) turned out to be wave 4 of (3). What mattered didn’t change, though. A five-wave structure to the downside led to more stock price weakness, following a correction, just as the Elliott Wave principle postulates.
Now, the selloff from DKK 1033 can easily be seen as a much bigger five-wave impulse pattern, labeled (1)-(2)-(3)-(4)-(5). The same logic applies. A three-wave recovery should soon follow in wave B towards the resistance of wave (4) near DKK 550, before the selling pressure resumes in wave C.
From a valuation standpoint, Novo Nordisk trades at roughly 12.5 times this year’s earnings. Expectations for free cash flow, however, have been reduced from DKK ~80B to just DKK ~40B. Given the company’s DKK 1.4 trillion market cap, the stock may not be the bargain it appears on a P/E basis. So we should perhaps take this mid-term bullish Elliott Wave outlook with a grain of salt and maintain a healthy dose of caution.