Danish drugmaker Novo Nordisk has been dethroned by German software giant SAP as Europe’s most valuable company.
SAP has soared some 40 per cent over the last year as investors celebrated its move towards subscription-based cloud services, but the real story is the downturn in Novo’s fortunes.
Not long ago, there was talk of Novo becoming Europe’s first trillion-euro stock. Today, it is valued at €300 billion, with shares more than halving since last summer.
Much of the damage was done in December when the stock tanked after CagriSema, Novo’s experimental anti-obesity drug, achieved a 22.7 per cent weight loss in a clinical trial, slightly below its 25 per cent target.
The bloodletting accelerated this month, with shares losing almost a quarter of their value following further disappointing trial results for CagriSema.
Novo’s earnings are still expected to climb between 19 and 27 per cent this year. With the stock at 52-week lows and trading on 22 times trailing earnings – its lowest valuation in four years – contrarians might see the selling as overdone.
Still, it’s a lesson in the perils of investing in growth stocks like Novo. Last summer, the stock traded on 56 times earnings.
When a stock is priced for perfection, even slight disappointments can trigger brutal sell-offs.
