I’ve been desperate to buy AstraZeneca (LSE: AZN) shares for ages. It’s a brilliant British company and I want to share in its success. One thing has been holding me back. I feel like I’m too far behind the curve.
Its CEO Pascal Soriot’s pay package came under fire when it emerged that he earned nearly £17m last year, one of the most generous packages on the FTSE 100. Yet he’s earned it, given his achievements since being appointed in October 2012.
Soriot has more than doubled AstraZeneca’s market cap over the last five years, from around £90bn to £191bn. Just think about that for a minute — it’s an increase of around £100bn. His remuneration, while huge, is only a fraction of that. His success poses a problem for me, though.
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This stock is too successful
I prefer to buy companies when they’re struggling and cheap, in the hope that the board can unleash their full potential. Soriot unleashed AstraZeneca years ago. He beat off Pfizer’s hostile takeover bid in 2014, poured money into R&D, revived its drugs pipeline, and pioneered a big push into cancer therapies and the fast-growing weight loss market. Today, the drug maker is the UK’s biggest company, slightly ahead of oil giant Shell.
Unsurprisingly, it’s not cheap, trading at more than 40 times trailing earnings. The group’s forward price-to-earnings ratio (P/E) is 28.3 times. The forecast dividend yield is roughly half the FTSE 100 average at 1.98%, despite this year’s 7% hike. That’s the price of success.
I’m also thinking, with such a massive market cap, how much scope is there for growth from today’s bullish starting point?
In full-year 2023, total revenues jumped 6% to $45.8bn, which is even more impressive given that sales of Covid medicines fell $3.74bn. Otherwise the increase would have been 15%.
The outlook is solid, with the board expecting total sales and core earnings per share to increase by “low double-digit to low teens percentage” in 2024.
High prospects, high price
Pioneering new treatments is always risky. Development and approval take years, and can end in failure. AstraZeneca has to keep delivering to justify its valuation. Its Covid vaccine was controversial, causing blood clots in rare cases. However, it’s still estimated to have saved 6.3m lives in 2021 alone.
The AstraZeneca share price is up 117% over five years but a modest 4.65% over 12 months. That brief slowdown handed me a potential buying opportunity, but I failed to take advantage. If I’d invested £10,000 three months ago, I’d have £12,673 today, with the stock jumping 26.73% in that time.
Should I buy today? Sadly, I think I’ve missed my moment. Instead, I’ve been buying shares in rival GSK, which has trailed badly. I’m hoping it’s at the bottom of its growth cycle, rather than somewhere near the top. Fingers crossed it will do just as well, if I give it enough time. I’ll buy AstraZeneca when it slips. But I’ve no idea when that might be. Possibly after Soriot finally leaves?
