Novo Nordisk Stock Got Battered. Think Twice Before Buying the Dip.

Novo Nordisk slashed its full-year outlook Tuesday, citing competition in U.S. markets. (SEBASTIEN BOZON/AFP via Getty Images)

Novo Nordisk is in the sick bay.

The stock had its worst day since Black Monday and Wall Street is becoming increasingly skeptical that the weight-loss drugmaker can play catch-up in an increasingly competitive market.

Analysts were lowering their expectations on the stock after Novo slashed its full-year outlook Tuesday citing the persistent use of copycat versions of GLP-1s—a type of gut hormone that help regulate blood sugar levels and control appetite—in the U.S., which it vowed to fight.

There are two competing narratives on Novo: that the weight-loss market is so huge that there’s plenty to go around for Novo, U.S. rival Eli Lilly , as well as the many companies currently developing their own weight-loss drugs.

The gloomier outlook is that Novo, despite being a pioneer in the weight-loss field, simply can’t keep up with the competition, and that other drugmakers have stronger pipelines.

BMO Capital Markets analyst Evan Seigerman is in the second camp. Late Tuesday, Seigerman lowered his target price on Novo’s American depositary receipts to $55 from $64, and increased long-term market share allocation to Eli Lilly at Novo’s expense. Novo’s lower guide, Seigerman says, reflects the new reality of the market. “Lilly is the leader.”

Jefferies analysts said it was “hard to find a silver lining.”

What likely hurts Novo investors even more is that they have been here before. In December, shares dropped 18% after an update on its experimental weight-loss drug CagriSema suggested the medicine wasn’t as effective as Novo had previously said. At the time, many retail investors loaded up on Novo shares thinking that, surely, this was the bottom.

Investors weren’t buying the dip en masse this time. Novo’s ADRs were down 3.5% to $52.04 in premarket trading Wednesday. Coming into Wednesday trading, they were down nearly 60% in the past 12 months, down 37% since the day of the CagriSema update.

Novo’s gross margins are still at a whopping 80% with quarterly sales in the tens of billions. Many would argue that more than justifies a valuation higher than its current forward price to earnings ratio of 12.7

Based on the recent stock moves investors seem to have finally made up their minds about Novo.

Write to Elsa Ohlen at elsa.ohlen@barrons.com