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The AZN share price has stumbled. Is now a good time to buy the stock?

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The AstraZeneca (LSE: AZN) share price outperformed the FTSE 100 by a substantial margin in 2020. However, over the past 12 months, the stock has lagged the UK’s leading equity index.

Excluding dividends, shares in AstraZeneca have returned -1%. Meanwhile, the lead index has added nearly 18%. Over the past month, shares in the pharmaceutical giant have lost 4%, compared to a flat FTSE 100. 

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This performance seems to suggest the market has become disinterested in the enterprise. But I think that could be a mistake. Indeed, the company’s latest trading update indicates to me the group is stronger than ever. 

AZN share price growth 

AstraZeneca has risen to fame over the last year as the company’s cheap and effective coronavirus vaccine has saved tens of thousands of lives. The decision to sell the vaccine at cost to many customers has generated a spate of good publicity for the group. In the second quarter, the company generated $900m of sales from its coronavirus vaccine. In the same period, US drug giant Pfizer reported sales of $7.8bn for its treatment.

The company’s vaccine catapulted it onto the front pages of newspapers worldwide, but it’s only a tiny part of the overall business. In the second quarter, group sales totalled $8.2bn. Rising sales of treatments to emerging markets and oncology helped boost revenues 31% year-on-year. 

Based on these revenue trends, City analysts expect the company to report earnings per share of around 523p this year. This suggests the AZN share price is trading at a forward price-to-earnings (P/E) multiple of 22. Further growth of 28% is expected in 2022. Based on these targets, the stock’s selling at a 2022 P/E of 17.3. 

These numbers don’t look to me to be particularly demanding. The stock’s trading at roughly the same valuation as its FTSE 100 peer, Hikma. What’s more, a 2022 P/E of 17.3 implies the AZN share price is dealing at a PEG ratio of less than one. This implies the stock may offer growth at a reasonable price. 

Of course, these are just forecasts. There’s no guarantee the company will hit earnings projections in the years ahead. 

Risks and challenges

If the company’s growth doesn’t live up to expectations, the stock may be expensive at current levels. Challenges the group may face include higher research and development costs. Regulatory delays in approving new treatments may also hold back growth.

AstraZeneca’s sales have also faced pressure in the past as its treatments have lost patent protection, allowing competitors to manufacture the same drug at a lower cost. 

Despite these potential headwinds, I think the recent performance of the AZN share price could offer an opportunity. That’s why I’d buy the stock for my portfolio today.

The national champion has a market-leading position in vaccines and oncology, and its current valuation suggests the market is overlooking its long-term growth potential. 

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Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Hikma Pharmaceuticals. 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.

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