The Motley Fool

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

Image source: Getty Images.

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?

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

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.

“This Stock Could Be Like Buying Amazon in 1997”

I'm sure you'll agree that's quite the statement from Motley Fool Co-Founder Tom Gardner.

But since our US analyst team first recommended shares in this unique tech stock back in 2016, the value has soared.

What's more, we firmly believe there's still plenty of upside in its future. In fact, even throughout the current coronavirus crisis, its performance has been beating Wall St expectations.

And right now, we're giving you a chance to discover exactly what has got our analysts all fired up about this niche industry phenomenon, in our FREE special report, A Top US Share From The Motley Fool.

Click here to claim your copy now — and we’ll tell you the name of this Top US Share… free of charge!

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.

Where to invest £1,000 right now

Renowned stock-picker Mark Rogers and his select team of expert analysts at The Motley Fool UK have just revealed 6 "Best Buy" shares that they believe UK investors should consider buying NOW.

So if you’re looking for more top stock ideas to try and best position your portfolio in this market, then I have some good news for your today -- because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.