Novo Nordisk's Wegovy Pill Has Topped 5 Million Prescriptions. Is the Stock a Buy Now?

Novo Nordisk (NYSE: NVO) now goes by the name Novo, a move intended to highlight the company's changed business focus. Nothing really changed about the company, per se, but as you assess the success of the drugmaker's Wegovy GLP-1 weight-loss pill, you need to understand it isn't running the same game plan as before. Here's why Novo Nordisk could be a buy today for income-focused turnaround investors, but why more conservative investors may still want to wait before jumping aboard.

Novo Nordisk's GLP-1 conundrum

Novo Nordisk was the first to market with a GLP-1 weight-loss shot. The importance of this category of drugs can't be overstated. Obesity and its health implications are a global problem. Telling people to eat less and exercise more clearly hasn't been enough to solve the issue. But now, there is a medical solution for those who struggle with their weight.

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And that doesn't even take into consideration the purely cosmetic value of GLP-1 weight-loss drugs. In fact, early on, Novo Nordisk couldn't keep up with demand because so many patients wanted them. That was a massive problem because it allowed generic competition to enter the market sooner than it otherwise would have. And when Eli Lilly (NYSE: LLY) brought out GLP-1 drugs that offered greater weight loss, Novo Nordisk quickly became the industry also-ran.

This is why it is so important that Novo Nordisk's GLP-1 pill is seeing such strong acceptance. The pill has now reached more than five million patients. And its launch has been even more successful than the company's Wegovy shot. But don't rush out and buy the stock just yet.

Novo Nordisk: Price versus volume

Novo Nordisk's shift to just Novo is part of a change that focuses the company on selling more drugs at lower prices. So, despite the success of the Wegovy pill, Novo Nordisk's earnings have been relatively weak, as selling at lower prices has reduced revenues and earnings. That's part of the plan, so the company is doing exactly what it said it would. But it still isn't clear that a volume-driven model will be sustainable over the long term for this pharma giant.

The healthcare sector is highly competitive, and Eli Lilly has already launched its own GLP-1 pill. Meanwhile, other competitors are working on rival weight-loss drugs of their own. To be fair, the global weight-loss opportunity is huge, so there is likely to be room for more than one GLP-1 drug. But for more conservative investors, waiting for Novo Nordisk to show a little more progress on the income statement may be the more desirable approach.

That said, there is an income opportunity here for more aggressive investors willing to step into a turnaround story. Novo Nordisk's dividend yield is highly attractive at 4.4%, and its trailing 12-month payout ratio is a comfortable 33%. While 2026 is a transition year, the early success of the Wegovy pill hints that the transition to a volume-driven model is going reasonably well. If you are willing to give this company the benefit of the doubt, you could end up with a big yield and capital appreciation.

The risk/reward balance is probably tilted toward reward

There's no way to know what happens in the future, so you have to make an educated guess about whether or not Novo Nordisk will be able to shift to a volume-driven model with its GLP-1 pill. Given how quickly things turned south for Novo Nordisk's GLP-1 shot, there's always a chance that the good news comes to an abrupt end.

However, so far, the news is good, and more aggressive dividend investors will probably find the stock attractive. Notably, the stock's price-to-sales and price-to-earnings ratios are half their five-year averages, so it looks historically cheap. Add a value price tag to a high, well-covered yield, and the strong Wegovy pill launch starts to make this drug maker look a lot more appealing.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Eli Lilly and Novo Nordisk. The Motley Fool has a disclosure policy.