Pfizer (PFE 1.16%) has been a pharmaceutical giant for decades and a key player in healthcare. Its drugs have saved lives and generated a ton of revenue for its business over the years. While it’s still innovating and developing new treatments, it’s also facing adversity, with multiple drugs losing patent protection in the near future.
This makes the stock an intriguing option to consider today. It’s down more than 30% over the past five years due to slowing growth and concerns about what lies ahead. There’s some risk here, but there’s also opportunity, given that its valuation has come down so much. And don’t forget, the stock also pays a dividend, which, due to its rapid decline, now yields an incredible 6.4%.
Is the stock a buy, sell, or hold at $27?
Image source: Getty Images.
Can Pfizer get back to growing its business?
Ultimately, whether or not Pfizer’s stock can go on a prolonged rally will depend on the outlook growth investors have for the business. At a time when the healthcare sector is under pressure to reduce costs, and there’s growing skepticism about vaccines, it’s not all that surprising that investors aren’t feeling all that excited about many healthcare stocks. Pfizer, which generates a lot of revenue from vaccines and which got a big boost from its COVID vaccine and pill in recent years, is certainly no exception.
Its struggles can be summed up with the chart below, which highlights just how impressive its growth rate was during the pandemic, and how quickly it came crashing back down.
PFE Revenue (Quarterly YoY Growth) data by YCharts
Pfizer has been involved in many acquisitions in recent years in an effort to grow its business, but it’s proving to be a challenging road ahead. A few years ago, CEO Albert Bourla outlined a growth strategy that leaned heavily on acquisitions and in-house development, through which Pfizer could add $25 billion to its top line by the end of the decade, more than offsetting a possible $18 billion decline in revenue due to growing competition from generics. Investors, however, don’t appear to be convinced that it’s on the right path.
Today’s Change
(-1.16%) $-0.31
Current Price
$26.48
Key Data Points
Market Cap
$152B
Day’s Range
$26.32 – $27.58
52wk Range
$21.97 – $28.75
Volume
58M
Avg Vol
41M
Gross Margin
66.23%
Dividend Yield
6.42%
Why Pfizer’s stock might be worth the risk
Pfizer is navigating a challenging path ahead, but I believe its efforts will pay off. This is the healthcare sector after all, and it can sometimes take just one big drug approval that makes a stock a hot buy again. Pfizer isn’t at that stage yet, but with over 100 drug candidates in its pipeline, odds are, it’ll have more than a few approvals coming its way in the near future.
Plus, the stock’s valuation is extremely low, offering investors a solid margin of safety. It trades at just nine times its expected future earnings (based on analyst estimates). That’s a dirt cheap valuation for a company that generated $63 billion in revenue last year, and which could be on the cusp of much more growth. Investing in Pfizer comes with a bit of risk, but the stock also possesses a lot of potential upside in the long run.