There are always lots of numbers to evaluate when deciding whether or not to buy a particular share.
Today I’m going to look quickly at three numbers that should be considered by anyone thinking about investing in AstraZeneca (LSE: AZN) (NYSE: AZN.US).
That’s AstraZeneca’s price-to-earnings (P/E) ratio and it’s well below the FTSE 100 average of around 16. That difference suggests that either the company’s earnings will be in serious decline for some time (not, perhaps, an uncommon opinion) or else the share price is undervalued.
Boss Pascal Soriot has made some encouraging changes in his first year at AstraZeneca, such as a major shake-up of its senior management, and a new global strategy that’s clearly focused on R&D.
And there have also been some strategic ‘bolt-on’ acquisitions of companies with candidate products that AstraZeneca can potentially bring to market much faster than it could develop from scratch.
If you believe the company will be able to re-fill its dwindling product pipeline, and that it can develop a range of new treatments that will generate serious revenue, then that P/E of 9 suggests that AstraZeneca might currently be something of a bargain.
That’s AstraZenca’s current percentage yield — around double the FTSE 100 average, and substantially more than you can get from a savings account.
So, even if AstraZeneca’s share price fails to sparkle for some time, a dividend income of 6% on your investment is not to be sniffed at in the meantime.
Of course, the dividend needs to be sustainable. AstraZeneca’s current dividend policy is to maintain or grow the dividend within a limit of two times coverage by core earnings.
Given that it will take some time for new products to come to market, dividend growth may not be realistic for a few years yet. But so long as earnings don’t decline significantly, it should at least be maintainable.
That’s the consensus analyst forecast of the number of US dollars AstraZeneca will be generating in revenue in 2018. $21bn may well seem a huge amount, but it’s 25% lower than the $28bn of 2012. It’s hardly encouraging to think that the company will be bringing in substantially less money in five years’ time than it did last year.
However, back in March, when it outlined its new strategy to “return to growth” and “achieve scientific leadership“, AstraZeneca said
“Based on our focused investment in key growth platforms and our pipeline, we believe we can significantly exceed current market consensus for 2018 revenues of $21.5 billion.“
Of course, “significantly exceed” is a somewhat imprecise term, but if that belief is justified, AstraZeneca’s future may be rather brighter than the market thinks, albeit that the light may be at the end of quite a long tunnel.
So there you have them — three numbers which may or may not have some bearing on whether you buy shares in AstraZeneca.
> Jon does not own any share mentioned in this article.