Pfizer currently trades at $25.89 per share and has shown little upside over the past six months, posting a middling return of 2.7%. The stock also fell short of the S&P 500’s 10.8% gain during that period.
Is now the time to buy PFE? Or does the price properly account for its business quality and fundamentals? Find out in our full research report, it’s free.
Why Does Pfizer Spark Debate?
With roots dating back to 1849 when two German immigrants opened a fine chemicals business in Brooklyn, Pfizer (NYSE: PFE) is a global biopharmaceutical company that discovers, develops, manufactures, and sells medicines and vaccines for a wide range of diseases and conditions.
Two Positive Attributes:
1. Economies of Scale Give It Negotiating Leverage with Suppliers
Larger companies benefit from economies of scale, where fixed costs like infrastructure, technology, and administration are spread over a higher volume of goods or services, reducing the cost per unit. Scale can also lead to bargaining power with suppliers, greater brand recognition, and more investment firepower. A virtuous cycle can ensue if a scaled company plays its cards right.
With $63.32 billion in revenue over the past 12 months, Pfizer is one of the most scaled enterprises in healthcare. This is particularly important because branded pharmaceuticals companies are volume-driven businesses due to their low margins.
2. Adjusted Operating Margin Rising, Profits Up
Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.
Looking at the trend in its profitability, Pfizer’s adjusted operating margin rose by 19.2 percentage points over the last two years, as its sales growth gave it operating leverage. Its adjusted operating margin for the trailing 12 months was 34.1%.
One Reason to be Careful:
Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Pfizer’s 4.9% annualized revenue growth over the last five years was mediocre. This wasn’t a great result compared to the rest of the healthcare sector, but there are still things to like about Pfizer.
Final Judgment
Pfizer’s merits more than compensate for its flaws. With its shares underperforming the market lately, the stock trades at 9.1× forward P/E (or $25.89 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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