From the doldrums of the COVID-19 crisis to the early summer of 2024, few major pharmaceutical companies enjoyed as much market success as Novo Nordisk NVO. Much of the success was tied into the company’s weight-loss drugs Wegovy and Ozempic. However, competition in the space has intensified, particularly from Eli Lilly LLY and its weight-loss rival drug Zepbound. But with exhaustion in the space dragging down both stocks, speculators may have a discounted opportunity.
To be fair, circumstances fundamentally don’t necessarily look exceptionally bright for Novo Nordisk. For its second-quarter earnings report, the drugmaker posted earnings per share of 91 cents, missing Wall Street analysts’ consensus target of 93 cents. On the plus side, the latest print was a big improvement over the year-ago quarter’s EPS of 65 cents.
On the top line, Novo Nordisk generated $11.68 billion, again missing the consensus view, which stood at $11.79 billion. However, the bright spot was the year-over-year growth of nearly 19%. Still, heading into the earnings disclosure, NVO stock found itself down more than 46%.
To make matters seemingly worse for Novo Nordisk, Eli Lilly did beat analysts’ expectations on both the top and bottom lines, delivering EPS of $6.31 on revenue of $15.56 billion. In contrast, Wall Street expected EPS of $6.07 on revenue of $15.42 billion.
But even with headwinds — including a federal securities class action lawsuit for significantly cutting its sales and profit outlook for 2025 — Novo Nordisk has been enjoying a potential shift in form. On Friday, NVO stock moved up about 3% in afternoon trading, bringing its trailing-five-day performance to over 4%.
Sure, there are risks to be considered, especially amid the changing landscape and expectations revolving around weight-loss therapeutics. In addition, investors apparently have grown weary of the exceptional hype that has skyrocketed the valuation of assets like NVO stock.
However, the subsequent discount may have opened the door to potential profit scalping.
Why NVO Stock Could Be Flashing A Sentiment Reversal
While Novo Nordisk’s dynamic narratives could be appealing to bullish traders, the problem is that it’s difficult to extract a sensible, forward-looking game plan. Plus, betting on NVO stock simply on narratives rides on a major presupposition that the market simply hasn’t priced in the true valuation of the pharmaceutical giant.
That would be an extraordinary claim, which would require extraordinary evidence to back up. Just about the only objective truth that traders can rely on in the equities sector is this: at the end of the day, the market is either a net buyer or a net seller.
Subsequently, by condensing price action of NVO stock into net accumulative or distributive behavioral states, analysts can apply epistemological continuity. Output phrases that describe investment quality, such as “good opportunity” or “undervalued” are discrete labels. It therefore makes sense that the input variables used to spit out these outputs are also discrete objects.
Further, the other advantage of this compression process is that recurring patterns are much easier to identify for probabilistic analysis. For example, in the trailing 10 weeks, the market voted to buy NVO stock four times and sell six times. During this period, the security incurred a downward trajectory. For categorization purposes, this sequence can be labeled 4-6-D.
What’s interesting here is that in 61.54% of cases, the week following the flashing of the aforementioned sequence results in upside, with a median return of 2.95%. This is a modest but noticeable uptick from the baseline probability of 56.77% or the chance that a long position in NVO stock will rise on any given week.
In scientific terms, the projected probabilistic performance of the alternative hypothesis beats out the null hypothesis or the assumption of no mispricing. Therefore, bullish traders could be justified in bidding up NVO stock — but within reason.
Even if the bulls maintain control of the market, the projected rise is expected to be gradual rather than robust. That makes an options strategy known as the vertical spread an appropriate idea. While spreads cap maximum potential profitability, they make the position itself cheaper, making it an attractive choice for securities that are only projected to move by a small magnitude.
Deploying Leverage The Smart Way
Based on the market intelligence above, arguably the most sensible options strategy is the 57/58 bull call spread expiring Sept. 19. This transaction involves buying the $57 call and simultaneously selling the $58 call, for a net debit paid of $51. Should NVO stock rise through the short strike price ($58) at expiration, the maximum profit is $49, a payout of just over 96%.
Those who really want to go for it may consider the 58/59 bull spread, also expiring on Sept. 19. Here, the net debit required is a little bit cheaper at $43 but the max profit is sizable at $57, which translates to a 132.56% payout. Of course, the issue is that the breakeven price is $58.43, whereas the breakeven for the 57/58 bull spread is $57.51.
It comes down to probabilistic confidence, which segues into the empirical reliability question. Running a one-tailed binomial test on the 4-6-D sequence reveals a p-value of 0.3327, indicating that there’s a 33.27% chance that the implications of the signal could materialize randomly as opposed to intentionally.
Admittedly, that’s on the high side but it comes with the important caveat that, week to week, NVO stock enjoys a strongly positive bias (thanks to its rally from 2020 to mid-2024). Given the steep underperformance since its peak valuation and thus the perception of a deep discount, NVO’s reversal signal could potentially be stronger than usual.
The opinions and views expressed in this content are those of the individual author and do not necessarily reflect the views of Benzinga. Benzinga is not responsible for the accuracy or reliability of any information provided herein. This content is for informational purposes only and should not be misconstrued as investment advice or a recommendation to buy or sell any security. Readers are asked not to rely on the opinions or information herein, and encouraged to do their own due diligence before making investing decisions.
Read More:
Image: Shutterstock
Market News and Data brought to you by Benzinga APIs
© 2025 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.