Go To

1 More Reason To Avoid AstraZeneca

Last month, I showed you 1 Reason To Avoid AstraZeneca stock while it works to create a Covid-19 vaccine.

Today I tell you 1 More Reason To Avoid AstraZeneca after governments worldwide halted the trials for this vaccine.

You can read the original article in full at the link above.

But if you don’t want to; here’s a quick recap of why I said you should avoid AstraZeneca.

Introducing AstraZeneca (AZN)

1 Reason To Avoid AstraZeneca

It’s Enormously Overvalued

Normally in these articles I talk about other things like profitability, cash flow, the affects coronavirus is having on a company’s financials, and other things.

But frankly none of those matter with AstraZeneca (AZN) due to its huge valuation.

As of this writing AstraZeneca is one of the largest pharmaceutical companies in the world with a market cap of $146.4 billion.

But just how overvalued is AstraZeneca?

Its current P/E is 69.2

Its current P/CF is 33.7.

And its current forward P/E is 28.5.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

AstraZeneca crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This also means you have a much higher probability of earning higher returns owning its stock over time.  And these combined make the stock a less risky investment.

With AstraZeneca stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

But why is it so overvalued?

Because it’s one of the companies in the pharmaceutical world working to create a Covid 19 vaccine.

And as of this writing its proposed vaccine looks like one of the best candidates.

Because of this people are buying its shares a lot on the hopes of this vaccine.  And this is taking its share price far above where it should be based on its current profits.

I hope the vaccine it creates works well, is safe, and protects all of us from this virus.

But I require as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point.

If you’re buying AstraZeneca stock today there’s zero room for error due to its huge valuation.

And this makes it a risky investment today even though it’s likely to continue performing well, producing profits, and helping patients.

For this reason of its huge valuation I recommend you stay far away from investing in AstraZeneca.

***

This thesis to continue avoiding AstraZeneca was proved out even more on September 9th, 2020 when AstraZeneca stopped its Covid-19 vaccine trial after a participant experienced “serious neurological symptoms.”

The symptoms “were consistent with a rare but serious spinal inflammatory disorder called transverse myelitis.”  This disorder causes disruptions in the messages the spinal cord nerves send throughout the body.

This adverse reaction led governments worldwide to stop the trials of the vaccine.

Issues pop up on vaccine and medication trials all the time. And it’s why these vaccine trials are so thorough… To make sure they’re safe for people to use before releasing publicly.

AstraZeneca’s now partially restarted these trials in certain parts of the world.  And its still too be determined if this vaccine – or any other vaccine – will be safe enough and effective enough for the coronavirus.

But this is why valuation is so important…

AstraZeneca’s shares we’re priced as if this vaccine was a sure thing when it’s far from that.

Sky high valuations lower the margin of safety, increase the risk, and lower the returns you should expect owning a stock.

This compounds when things like vaccine or medication trials and the uncertainties of the human body come into play.

And this stoppage of the trial hasn’t dropped Astra’s share price at all either… Its still as overvalued as it was last month when I told you to avoid its stock.

Due to its still enormous valuation, continue avoiding AstraZeneca stock.

Use the following links to some of our recent articles to learn other ways to protect your investments in these uncertain times. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

Comments are closed.