After Pascal Soriot took the helm during crisis time at AstraZeneca (LSE: AZN), it was always going to take a while to turn things round. Maybe about five years, I thought, back in 2012. Still, the pharmaceuticals giant recorded a hefty 2020 profit rise after several years of falls. And the AstraZeneca share price had already been gaining in anticipation of a return to long-term growth.
Since early 2019, the shares have been climbing. And over a five-year period, they’ve more than doubled in price. The last 12 months have been a bit rocky, with the company getting into troubles with the European Union over shipments of Covid-19 vaccine.
But, since early March, we’re looking at a steady rise again. A first-quarter earnings call at the end of April gave AstraZeneca shares another boost, and they’ve continued upwards since. My Motley Fool colleague Pam Narang has picked up on some of the main points of AstraZeneca’s key drug developments, so I won’t repeat them here.
But, to summarise, AstraZeneca is making impressive progress in its key lines of oncology and diabetes research. So I really don’t think we should see the AstraZeneca share price as a Covid-19 play. I do fear, however, that’s how a lot of investors see it right now.
AstraZeneca share price valuation
Will I buy? That depends on whether the company really has got its pipeline primed to produce regular successes in the coming years. And if I think we can expect a period of steady earnings growth. I can’t tell from the Q1 figures, which were skewed by the disposal of AstraZeneca’s 26.7% share of Viela Bio. That raised a profit of $776m. First-half results, due in July, will be fuller and will hopefully give me a better insight.
In the meantime, I’m thinking about the AstraZeneca share price valuation. They ended 2020 on a P/E of around 40. And this year’s share price gains push that trailing multiple as high as 47. That’s the kind of level I’d expect for a smaller growth stock, and it does seem to assume there’ll be some stellar growth from AstraZeneca in the next few years.
And AstraZeneca shares have been volatile, and do seem to be cyclical. Even with no obvious change in the company’s long-term outlook, investors can swing from not touching it with a bargepole, to pumping it up like the next great growth stock.
Waiting for steadier times
As I suggested, I really do think Covid-19 lies behind a lot of the current AstraZeneca share price bullishness. But I don’t expect it to figure greatly in the company’s long-term future. Covid has quickly become one of the world’s best-researched ailments. While the worldwide effort has been nothing short of remarkable, it does mean there’s huge competition out there for these vaccines.
Right now, I’m not going to buy. Today’s valuation, and the Covid-19 effect, make me want to wait until things are more settled. And when the dividend starts rising again, that’s when I’ll be truly convinced that sustainable earnings growth is back.