Is the AstraZeneca share price a FTSE 100 bargain or value trap?
It's been a difficult five+ years for investors in AstraZeneca(LSE: AZN). The pharma stock has experienced an almost constant fall in earnings as a number of its blockbuster drugs have seen their sales fall as generic competition has taken its toll.
However, the company's share price has delivered strong growth during that time. It has risen by around 57% with investors having become increasingly positive about its capacity to overcome the 'patent cliff' it has faced.
Despite this, it still seems to be cheap given its future prospects. Could it therefore be worth buying alongside a FTSE 250 growth stock which seems to have a wide margin of safety?
Changing outlook
While the last five years have been tough for AstraZeneca, with its bottom line falling during that time by around 37%, its future looks set to be much brighter. Although a further earnings decline of 22% is expected in the current year, growth is due to restart next year. The company's bottom line is forecast to rise by 13% in 2019, and this has the potential to act as a positive catalyst on investor sentiment.
The acquisition programme which has been pursued by the business in recent years could help to improve its financial outlook. It has repositioned the business so that it is better placed to capitalise on growth trends, and a solid balance sheet and cash flow mean that further M&A activity could be ahead over the medium term.
Value opportunity
Despite its improving outlook and share price growth of recent years, AstraZeneca trades on a price-to-earnings growth (PEG) ratio of 1.6. This appears to be relatively low given its improving outlook, and could mean that its capital growth prospects are high. That's especially the case since pharma stocks may prove popular if market volatility returns. They have lower positive correlation to the wider index and economy than many of their peers.
Of course, other stocks within the FTSE 350 also offer growth at a reasonable price. Releasing a trading update on Monday was FTSE 250 secure payment solutions specialist Eckoh(LSE: ECK), which seems to have a bright future.
Improving outlook
Eckoh's performance in the year to 31 March was in line with the company's expectations. It has continued to make good progress in the US, with strong momentum in the Secure Payments business. In fact, revenues in the US Secure Payments division more than doubled during the period, with its order book continuing to build.
While there were more challenging trading conditions in the UK, the company has started to see the benefits of its renewed UK sales function, as well as an increasing focus on its larger, more strategic accounts. And with new contracts having been won of late, it continues to have turnaround potential.
With Eckoh expected to post a rise in its bottom line of 22% in the current year, followed by 15% next year, it seems to be performing well. Despite this, it has a price-to-earnings growth (PEG) ratio of 1.4, which suggests that it could offer a wide margin of safety and may offer index-beating performance over the medium term.
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Peter Stephens owns shares of AstraZeneca. The Motley Fool UK has recommended AstraZeneca. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
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