In this article, I have assessed the performance of two leading pharmaceutical stocks, Canopy Growth Corporation (CGC) and Denmark-based Novo Nordisk A/S (NVO). Following a thorough analysis, I conclude that NVO presents a stronger prospect for investment, as elaborated in the subsequent analysis.

But first, let's look at the dynamics of the Pharma industry.

The pharmaceuticals market is growing steadily, fueled by innovative drugs and global demand for treatments. Customers seek personalized and preventative healthcare, driving demand for precision medicines tailored to genetic profiles.

Moreover, the pharmaceutical sector demonstrates resilience amidst economic shifts, thanks to consistent healthcare demand. Furthermore, sustained growth is anticipated owing to factors like an aging population, increased chronic illnesses, and technological advancements facilitating treatment development for previously untreatable diseases.

The pharmaceuticals market is forecasted to generate a revenue of $1.16 trillion this year. The sector is further projected to grow at a CAGR of 6.2%, reaching a market volume of $1,470.00 billion by 2028.

Moreover, NVO is a clear winner in terms of price performance, with a 56.3% gain over the past year compared to CGC’s 41.4% decline.

Here are the reasons why I think NVO might perform better in the near term:

Latest Developments

On March 22, 2024, Germany finalized the approval for cannabis legalization, marking a significant milestone in its legal and cultural landscape. CGC aims to establish itself as a major player in the German cannabis market by leveraging its renowned brands, such as Storz & Bickel vaporizers and medical cannabis products through Canopy Medical.

Conversely, on March 25, NVO agreed to acquire Cardior Pharmaceuticals for up to EUR1.03 billion ($), including upfront and milestone payments. Cardior specializes in RNA-based therapies for heart diseases, and its lead compound, CDR132L, is in phase 2 clinical development for heart failure treatment.

This acquisition aligns with NVO’s strategy to enter the cardiovascular disease market and build an impactful portfolio of therapies. CDR132L targets abnormal levels of microRNA molecule miR-132 to potentially improve heart function.

Recent Financial Results

CGC’s revenue for the fiscal third quarter ended December 31, 2023, declined 7.5% year-over-year to CAD78.51 million ($58.09 million). Its operating loss from continuing operations came in at CAD60.32 million ($44.63 million). The company’s net loss stood at CAD216.80 million ($160.41 million). Also, its loss per share came in at CAD2.62.

On the contrary, NVO’s net sales increased 31.3% year-over-year to DKK232.26 billion ($33.78 billion) for the fiscal year ended December 2023. Its operating profit rose 37.1% from the prior year to DKK102.57 billion ($14.92 billion). Its net profit and EPS rose 50.7% and 52.4% year-over-year to DKK83.68 billion ($12.17 billion) and DKK18.62.

Dividend Policy

CGC does not pay any dividends.

However, NVO pays an annual dividend of $1.86, which yields 1.50% on the current market price, higher than its four-year average dividend yield of 1.46%. The company has raised its dividend payouts at a CAGR of 23.8% over the past three years.

Past And Expected Financial Performance

Over the past three years, CGC’s revenue has declined at a 10.6% CAGR, and its total assets have declined at a 40% CAGR. Analysts expect CGC’s revenue to fall by 23.2% in the fiscal year ended March 2024 and 19.4% in the to-be-reported quarter. Moreover, its EPS is expected to be negative $2.18 in the same fiscal year and negative $0.23 in the same quarter.

In contrast, NVO’s revenue has increased at a CAGR of 22.3% over the past three years. Its total assets have grown at a CAGR of 29.5% over the past three years. Its revenue is expected to increase 23.4% in the current fiscal year and 18.1% in the to-be-reported quarter. Its EPS is expected to be $3.35 this year and $0.77 in the to-be-reported quarter.

Valuation

CGC’s forward P/S multiple of 1.97 is lower than NVO’s 13.42. Moreover, CGC’s forward EV/Sales multiple of 5.36x is lower than NVO’s 13.41x.

So, CGC is affordable.

Profitability

CGC’s trailing-12-month gross profit margin of 11.08% is lower than NVO’s 84.60%. In addition, CGC’s trailing-12-month EBITDA margin of negative 67.83% is lower than NVO’s 47.28%.

Furthermore, CGC’s trailing-12-month ROCE, ROTC, and ROTA of negative 119.80%, 9.73%, and 88.62 are lower than NVO’s 88.07%, 53.53%, and 26.61%, respectively.

Thus, NVO is more profitable.

POWR Ratings

CGC has an overall rating of F, which equates to a Strong Sell in our proprietary POWR Ratings system. Conversely, NVO has an overall rating of A, translating to a Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. CGC has a D grade for Quality. CGG’s trailing-12-month EBIT and EBITDA margins of negative 85.95% and negative 67.83% are significantly lower than the industry averages of 1.08% and 5.60%.

On the other hand, NVO has a B grade for Quality. NVO’s trailing-12-month EBIT and EBITDA margins of 44.77% and 47.28% are significantly higher than the industry averages of 1.08% and 5.60%.

Moreover, CGC has a D grade for Sentiment, which syncs with its unfavorable analysts’ estimates.

In contrast, NVO has a B grade for Sentiment, which is consistent with its favorable earnings projections.

Among the 169 stocks in the Medical – Pharmaceuticals industry, CGC is ranked #152, while NVO is ranked #9.

Beyond what we’ve stated above, we have also rated both stocks for Growth, Value, Momentum, Sentiment, and Stability. Get all CGC ratings here. Click here to view NVO ratings.

The Winner

Last year, global biopharma R&D funding rose to $72 billion, with 69 novel active substances launched globally, including 24 in the U.S. Clinical development productivity surged to 17.4, the highest since 2018, driven by improved success rates and innovative trial methodologies. These trends suggest a favorable environment for companies operating within the pharmaceutical industry.

Moreover, the pharmaceutical industry's inelastic demand provides a buffer against market volatility, benefiting companies like CGG and NVO.

However, CGC’s poor profitability and unfavorable growth prospects make its competitor NVO the better buy.

Our research shows that the odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical – Pharmaceuticals industry here.

What To Do Next?

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NVO shares were trading at $125.89 per share on Friday afternoon, up $1.93 (+1.56%). Year-to-date, NVO has gained 22.32%, versus a 9.38% rise in the benchmark S&P 500 index during the same period.

Her interest in risky instruments and passion for writing made Kritika an analyst and financial journalist. She earned her bachelor's degree in commerce and is currently pursuing the CFA program. With her fundamental approach, she aims to help investors identify untapped investment opportunities.

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