The FTSE 100 pharmaceuticals giant AstraZeneca (LSE: AZN) share price was a big gainer yesterday, rising by 5.5% from the day before as it reported a healthy set of results. Its share price is now close to all-time highs, raising the question – Is this a good time to buy AZN?
Expensive but worthy
I find it helpful to look at the price-to-earnings ratio (P/E) when share prices are rising to get a sense of how expensive the stock really is. From the looks of it, AZN sure is highly priced. Its 12-month trailing P/E is almost 43x compared to 19x for another FTSE 100 pharmaceuticals peer GlaxoSmithKline (GSK). Not to undermine GSK’s value, but I think this is a case of investors putting a premium on AZN rather than a one-off spike in its P/E, considering that it’s been maintained for some time now.
It was my top share for May, after it reported a good set of numbers and my sense was that it would rise from there on. From the time the article was published to now, the share price is up 31% and interestingly enough, the P/E is actually marginally lower than the 45x seen then. As an investor, this tells me that there are capital gains to be made even if the ratio is high, instructive as it is. Also, a high ratio doesn’t indicate that the share price will come off soon. In other words, don’t let a high P/E deter you right now because there are enough reasons that still make AZN attractive.
It’s a big pharmaceuticals company in an economic environment that continues to look uncertain. A number of other defensive shares have also seen a great run-up in share prices in recent years and AZN is no exception. Its international focus also helps, since it’s not entirely vulnerable to the UK’s fortunes. In the latest earnings release, CEO Pascal Soriot noted “impressive results” in international markets like China, the US and Japan.
Besides this, yesterday’s results showed an 18% increase in product sales at constant exchange rate and core operating profit grew by 41% in the third quarter of 2019. The numbers look good on a year-to-date basis too. I also like that AZN has actually upgraded its sales guidance for the second straight quarter, which basically means that it is expected to continue performing going forward.
Coming back to the original question – should I buy AZN shares now, even with the price rise? I reckon that its share price will rise higher over time if things continue to go the way they are right now. Since we at the Motley Fool are concerned with long-term investments, now is as good a time as any other to buy the share. As is the nature of share prices, there will most likely be short-term dips in the near future, and that should be an opportunity to buy more of AZN. But some can be bought right away, I believe.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has recommended AstraZeneca. 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.