AstraZeneca’s (LSE: AZN) share price has fallen significantly from its 3 September one-year traded high of £133.38.
Some of this drop resulted from an investigation of its Chinese business. The firm said in its Q1 2025 results released on 29 April that this remains ongoing and it is cooperating with Chinese authorities.
So far, it has only received a notice for suspected unpaid importation taxes of $1.6m. And it reiterated that no illegal gain has been made by the company.
Another element in the share price fall since September was the 2 April imposition of US tariffs on trading partners.
Both factors remain risks in my view. However, as a perennial private investor my focus is on the long term.
How does the core business look?
The key to the future health of any firm is its earnings growth. In AstraZeneca’s case, consensus analysts’ forecasts are that its earnings will grow by 14.5% every year to end-2027 at minimum.
Its Q1 results saw revenue rise 10% year on year to $13.588bn, while earnings per share (EPS) jumped 32% to 188 cents. Revenue is a firm’s total income, while earnings are what remains after expenses have been deducted.
For 2025, the company reiterated revenue guidance of high single-digit percentage growth and low double-digit growth in EPS.
It also restated its target of delivering $80bn in revenue by 2030.
Are the shares undervalued?
Earnings growth is the engine that drives a firm’s share price over time. And the greater the gap between its current price and its fair value, the more profit potential there is, in my experience.
The starting point for my assessment of this is to contrast a firm’s key stock measures with its competitors.
AstraZeneca’s price-to-sales ratio of 4 is bottom of its peer group, which averages 9.7, so it is very undervalued here. These firms comprise AbbVie at 6, Novo Nordisk at 6.5, Pfizer at 8.7, and Eli Lilly at 17.6.
It also looks very undervalued on the price-to-earnings ratio, at which it trades at 28.4 compared to a competitor average of 52.
And the same can be said of its 5.4 price-to-book ratio against the 44.3 average of its peers.
To put these numbers into share price terms, I turn to the second part of my evaluation. This identifies the price at which any stock should be trading, based on future cash flow forecasts for a firm.
The resultant discounted cash flow analysis for AstraZeneca shows its shares are 64% undervalued at their current £107.37 price.
Therefore, their fair value is £298.25, although market whims could push them lower or higher.
Will I buy more of the stock?
AstraZeneca is one of the few shares without a very high yield that I still hold (it yields just 2.2%). Aged over 50 now I focus on shares that pay high dividends so I can continue to reduce my working commitments.
The key reason why I still have them is their strong earnings growth potential over the short, medium, and long term. This should power the share price much higher over time and the dividend too.
Consequently, I will be adding to my holding while the price looks so cheap to me.
