Is the AstraZeneca share price too high now? Here’s what you need to know

AstraZeneca shares have been rallying for a while. Aren’t they too expensive right now? Anna Sokolidou thinks she knows the answer.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

The demand for pharmaceutical companies’ stocks has surged dramatically. AstraZeneca (LSE:AZN) shares have been no exception. Investor enthusiasm was fuelled by hopes of a new Covid-19 vaccine. But isn’t the AstraZeneca share price already too high? 

Why did the AstraZeneca share price rally?

On Monday, the pharma giant resumed phase 3 vaccine trials. As we all know, the company’s stock has been surging in recent months. That’s because people expect AstraZeneca to develop a Covid-19 vaccine. But is the future so bright for AstraZeneca and its vaccine?

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Quite recently the FDA said AstraZeneca’s coronavirus vaccine trial in the US is still pending. That’s because the FDA is unsure if there is a big safety issue or not. So, many questions remain. Phase 3 vaccine trials don’t mean the vaccine will be available tomorrow. What’s more, the FDA’s investigation also suggests there are still many regulatory hurdles. That’s why the AstraZeneca share price surge isn’t quite reasonable, in my opinion.

But there’s one more issue. Everyone wants to develop an effective Covid-19 vaccine. For example, in Russia a coronavirus vaccine was developed and approved by the state. Phase 3 trials are still going on, however. Some companies are close to launching their vaccine too. For example, Johnson & Johnson is doing late-stage testing right now. But we’ve all read plenty of stories about the likes of Gilead Sciences and Moderna. The point I’m making is that no one has developed and launched an effective Covid-19 vaccine yet, and it’s hard to predict who’ll be the first one to do so.

Please don’t forget that developing a good treatment doesn’t mean it’ll be easy to commercialise. Some drugs, for example, are easy to copy. Many companies such as Teva Pharma produce generics in developing countries. They are much cheaper but the quality isn’t much worse.

The overvaluation problem

My colleague Kirsteen wrote a wonderful article about AstraZeneca shares. I fully agree that the company is one of the largest and greatest Footsie constituents.


At the same time, the multiples the company is trading at are incredibly high. In my view, investors are already certain AstraZeneca will develop a best-selling and profitable Covid-19 vaccine. Only in that case can the price-to-earnings (P/E) ratio of 104 be justified.

Let’s compare AstraZeneca to its peer GlaxoSmithKline (LSE:GSK). Both companies are large pharmaceutical businesses with large market shares. GlaxoSmithKline’s sales revenue in 2019 totaled £33.8bn, while AstraZeneca’s was just $24.4bn. AstraZeneca’s dividend yield is about 2.5%. In comparison, GlaxoSmithKline’s is over 5%. What’s more, GSK’s insiders bought some of their company’s shares in late July. AstraZeneca’s directors also acquired some of their firm’s stocks. But they did so in February and March when the stock market was crashing. And yet GlaxoSmithKline shares are trading at a P/E of just 16 as opposed to AstraZeneca’s 104.

I don’t think it’s fair. AstraZeneca shares are popular just because of the vaccine hopes, I think.      

Here’s what I’d do

I appreciate the fact AstraZeneca is a respectable FTSE 100 constituent. Indeed, it’s large and operating in a stable sector. But, in my view, it’s just too overvalued. So, I’d avoid its shares. I’d look through the Motley Fool’s excellent library for other investment ideas.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Anna Sokolidou has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended Gilead Sciences. The Motley Fool UK has recommended GlaxoSmithKline and Johnson & Johnson. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Here’s a FTSE 250 stock to buy to benefit from the construction boom!

Jabran Khan details a FTSE 250 stock that could be primed to benefit from the infrastructure and construction boom.

Read more »

Young woman working at modern office. Technical price graph and indicator, red and green candlestick chart and stock trading computer screen background.
Investing Articles

Is the Royal Mail share price a buying opportunity?

With a 6% dividend yield and a price-to-earnings ratio of 3, is the Royal Mail share price in buying territory?…

Read more »

Scene depicting the City of London, home of the FTSE 100
Investing Articles

3 FTSE 100 shares! Should I buy them?

I'm searching for the best FTSE 100 stocks to buy following recent market volatility. Are these blue-chip UK shares too…

Read more »

macro shot of computer monitor with FTSE 100 stock market data in trading application
Investing Articles

Should I buy one of the cheapest shares on the FTSE 100 index?

This Fool explores one of the cheapest stocks on the FTSE 100 index by share price and decides if he…

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

With trading suspended, where could the Eurasia Mining (LON:EUA) share price go next?

This morning, the EUA share price was suspended pending an announcement - so could improving sales send the share price…

Read more »

Asian Indian male white collar worker on wheelchair having video conference with his business partners
Investing Articles

Are the FTSE 100’s top income stocks a bargain?

The FTSE 100 is renowned for its value and dividend stocks. So, are the index's top income stocks worth a…

Read more »

Compass pointing towards 'best price'
Investing Articles

Scottish Mortgage shares have slumped 40%. Time to buy now?

Scottish Mortgage Investment Trust (LON: SMT) shares have rewarded shareholders well in recent years. I'm thinking of buying now they're…

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

3 recession stocks I’d buy in a hurry

With the economic outlook getting worse, our writer highlights a trio of recession stocks he would consider buying for his…

Read more »