Is Novartis (SWX:NOVN) A Bargain After Its Recent Pullback?

Novartis has delivered a strong 81.1% gain over the past five years, yet its current valuation checks still lean cheap. That puts fresh pressure on investors to judge whether the recent pullback is an opening or a warning. After a sharp 15.0% decline over the last week and an 11.9% slide over the past month, the stock looks out of step with its longer term track record.

• Over five years, Novartis has returned 81.1%, which points to meaningful long run value creation despite short term volatility.
• The recent Alteogen agreement for subcutaneous drug development can support long term expectations for Novartis, while the pause of multiple CAR T trials after patient deaths highlights the clinical and regulatory risks that can weigh on how the market prices its pipeline.
• On a broad set of valuation checks, including market multiples, Novartis screens as relatively cheap, with a value score of 5 that points to an undervalued profile rather than a fully priced one.

The issue now is whether Novartis shares offer enough valuation support, given the mix of positive trial news and pipeline setbacks, to justify taking on the specific risks in its drug portfolio.

Capitalize on Novartis' pullback by scanning a curated set of resilient, potentially undervalued opportunities across the market with 183 high quality undervalued stocks.

Is Novartis Still Cheap on Earnings?

P/E suits a business like Novartis because earnings still anchor how investors think about the value of a mature pharma portfolio. The stock trades on a P/E of about 20.5x, which is slightly below the wider pharmaceuticals industry average of 22.3x. Against a peer group that sits closer to 41.5x, the gap is far wider and suggests that investors are not paying a premium multiple for this pipeline.

The fair P/E ratio implied by the model is 41.0x, roughly double where Novartis is priced today. That indicates a sizeable discount relative to what might be expected given its scale, profitability profile and risk mix. Despite the recent pause in multiple CAR T studies after patient deaths, the current P/E still prices Novartis at levels that appear low compared with both peers and the modelled fair ratio.

On P/E, Novartis currently screens as undervalued relative to both its industry and the fair multiple implied by the valuation model.

See what the numbers say about this price — find out in our valuation breakdown.

The Novartis Narrative: What Would Justify Today's Price?

Simply Wall St Narratives continue from where the Novartis valuation puzzle leaves off by explaining which expectations for growth, margins and earnings would need to hold for the share price to be worth materially more or less than it is today. Each scenario is treated as a thesis about Novartis' business that you can track over time, rather than a one off snapshot. They appear on Simply Wall St's Community page as structured viewpoints you can revisit as new information becomes available.

Community views on Novartis are split, with one camp seeing valuation support from new therapies and another worried the optimism runs too hot.

Bull case: 9% undervalued

"Operational efficiency gains from portfolio streamlining and productivity improvements are driving core margin expansion and higher free cash flow, which can be reinvested in R&D and shareholder returns..."

Read the full Bull Case to see why Novartis could be undervalued

Bear case: 14% overvalued

"Upcoming and ongoing generic erosion in major legacy products, notably Entresto, Tasigna, and Promacta, risks outpacing the ramp of newer launches if growth curves flatten, which would pressure overall revenue growth and limit further net margin expansion..."

Read the full Bear Case to see why Novartis could be overvalued

Do you think there's more to the story for Novartis? Head over to our Community to see what others are saying!

The Bottom Line

On the numbers, Novartis still screens as undervalued on earnings against both its sector and closer peers, which gives the recent pullback some fundamental backing rather than leaving it purely sentiment driven. The catch is that this discount exists alongside real clinical and regulatory hazards that are already visible in the CAR T pauses, not just abstract headline risk. What matters most from here is whether the existing portfolio and late stage assets can grow into the current P/E without fresh setbacks eroding confidence. That is the crux of whether this discount proves to be a genuine opportunity or a value trap in slow motion.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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