With a price to earnings (P/E) ratio of 76.5 times, FTSE 100 pharmaceuticals biggie AstraZeneca (LSE: AZN) is among the most expensive stocks in the set. But the AstraZeneca share price has always been high. Let me go back in time. This time last year, AZN was my top share for the month. Even then, one of its standout aspects was how high its P/E ratio was compared to peers.
The irony, however, is this. At the time, its P/E ratio was 45 times. That appears to be very reasonable compared to what it is now! That AZN’s share price has shown no persistent correction since – it has, in fact, continued on an upward trajectory – suggests that investors value it highly. There are several reasons for this.
Safe stock in recessionary times
The foremost is the fact that we are sitting in the midst of deep economic recession. It’s only a matter of time before it shows up in the numbers. It’s natural for investors to flock towards ‘safer’ stocks during times of such uncertainty. Defensives, as they are known, see limited demand reduction during such times, such is the nature of their products or services. One example is the pharmaceuticals and healthcare sector. It was obvious then, that the AZN share price was likely to benefit as the stock market crash ensued.
However, the latest market crash was particularly tilted towards the pharmaceutical sector. Driven as it was but the coronavirus crisis, companies whose products might help in the battle against the virus had an extra boost. AZN has been in the thick of these efforts, working on a vaccine.
It follows that AZN’s financials haven’t been impacted by the crisis. In fact it has continued to perform well, as evident from its quarterly results, which were released a month ago. The company also expects continued good performance going forward. This optimism stands out for two reasons. First, because it is optimistic. But also because it comes at a time of great uncertainty about the economic future. Most other FTSE 100 firms are withdrawing their previously stated earnings’ outlooks and not making any forward-looking statements. AstraZeneca’s calm assurance has been reflected in its share price.
What’s next for the AstraZeneca share price?
As an interested investor, I’m waiting for just one more dip in the AZN share price. However, I doubt if it will happen any time soon. I will consider buying some shares now, and add to that position as and when there’s an opportunity to buy at lower share prices. The long-term share price chart gives me some solace – it’s broadly upward sloping. In other words, a long-term investor with at least a three- to five-year horizon should stand to benefit.
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Manika Premsingh has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.