Recently, the FTSE 100 pharmaceuticals biggie AstraZeneca (LSE: AZN) hit a low. The AstraZeneca share price fell below £70 at the end of February. It has stayed at these levels ever since.
Let me put this in context.
The last time the AZN share price was at sub-£70 levels was in March last year. Even at that time, it was on an upward climb from the stock market crash which saw its share price momentarily plunge to £62.20.
And by July, it had risen to an all-time-high of £93 per share. It has dropped more than 25% since.
Why is the AstraZeneca share price falling?
The most obvious reason for the fall in the AZN share price is a shift in investor mood. As optimism has set in, riskier stocks appear more attractive and vice versa. The trend is visible across stocks that rose in 2020.
Also, there was a fair bit of confusion about the AstraZeneca-University of Oxford Covid-19 vaccine. This is partly because it was unclear if the vaccine was effective on people over 65 years, the most vulnerable population group. And partly because there are reports of it being ineffective on coronavirus variants.
While neither of these will impact AZN’s earnings — it has always said that the vaccine is a not-for-profit initiative — limitations of the vaccine may still dent perceptions about the company. Also, investors took note of AZN’s Alexion acquisition at a premium in December, which could have made it less attractive.
Moreover, despite the share price fall — AZN’s price is now closer to its levels during the stock market crash than its peak in 2020 — it is still not exactly a cheap UK share. Its price-to-earnings (P/E) ratio is still at around 40 times. Covid-19 sufferers like aviation and hospitality stocks would look far cheaper in comparison, at levels still below their pre-crash prices.
What will happen next?
Even if investor interest remains firmly directed towards Covid-19 hit stocks in the near-term, I reckon it is only a matter of time before it circles back to AZN.
There is much to like in the stock. It is now clear that the AZN-University of Oxford vaccine is effective for over-65s and it is being recommended in the EU.
It also reported strong results recently and has a positive outlook for 2021. The Alexion acquisition also underlines its expansion plans.
Further, its P/E, while still high, is not the highest among FTSE 100 stocks that did well in 2020. Some utilities are even pricier. I think that makes some case for AZN.
Should I buy?
There are a couple of risks I see – what if there are unknown side-effects of the vaccine? And what if the Alexion acquisition does not work out? There is little evidence to suggest either, but as an investor in the stock, I want to consider all possibilities.
These risks do not change my mind though; I think now is a good time to buy the stock.
