Pfizer’s valuation looks attractive, but that doesn’t mean the stock is a lock to outperform the broader market.
Pfizer (PFE 0.86%) can be a polarizing stock to own right now. Its future remains hazy given that it is facing some troubling patent cliffs and revenue from its COVID-19 vaccine is dwindling. But at the same time, the shares look cheap, and they could possess a lot of upside in the long run. Investors, however, aren’t exactly loading up on the stock. Year to date, it’s down around 3%.
The shares’ trajectory can be difficult to predict given the uncertainty around the business. And there’s a troubling stat that could have you thinking twice about Pfizer and whether it’s really worth buying — especially if you’re a growth investor.
Pfizer’s stock has only outperformed the S&P 500 in four of the past 10 years
The past doesn’t predict the future, but it can give investors a good insight into how a stock typically performs. Growth stocks, while they may have a bad year here and there, typically do well over a long period and the better ones usually outperform the broader market.
Stocks that investors generally aren’t all that bullish about or that don’t have promising long-term futures normally underperform the market. And Pfizer clearly falls into the latter category. Here’s how it has stacked up against the S&P 500 over the past decade.
| Year | Pfizer’s Return | S&P 500 Return |
|---|---|---|
| 2023 | (43.8%) |
24.2% |
| 2022 | (13.2%) |
(19.4%) |
| 2021 | 60.4% |
26.9% |
| 2020 | (0.8%) |
16.3% |
| 2019 | (10.2%) |
28.9% |
| 2018 | 20.5% |
(6.2%) |
| 2017 | 11.5% |
19.4% |
| 2016 | 0.6% |
9.5% |
| 2015 | 3.6% |
(0.7%) |
| 2014 | 1.7% |
11.4% |
Data source: YCharts.
What’s notable is that in two of the years in which Pfizer outperformed the index (2022 and 2021), it was getting a boost from its COVID vaccine. If not for that, the drugmaker’s returns may have been much worse in those years. By and large, however, Pfizer has generally been an underperforming stock. Much of the hope today lies with its low valuation and the possibility for the company to add a boatload of revenue by the end of the decade, fueled by acquisitions and its in-house pipeline.
Why Pfizer’s stock may continue to struggle
Pfizer hasn’t been a good investment to own lately, but there’s hope that with the stock trading at just 12 times its estimated future profits, it may be one of the best deals in the healthcare industry.
But the risk is that further down the road, the business may be in worse shape. Pfizer is facing patent cliffs for multiple top drugs, including Eliquis and Vyndaqel, which could reduce its top line by up to $18 billion by the end of the decade. The good news is that the company does have a plan to add up to $25 billion to help offset that.
There are, however, a couple of problems I see here.
The first is that with its acquisition of Seagen, it’s clear that Pfizer is focused on developing cancer treatments. And those have among the worst success rates of any drugs. While Pfizer’s growth strategy is ambitious and there could indeed be a lot of new products the business launches in the years ahead, there’s still a fair bit of risk and uncertainty there.
Second, between the loss of sales from its top drugs and potentially further declines in COVID-related revenue, the company’s new drugs may only offset the drop in sales. In other words, Pfizer could be generating the same level of revenue it is right now, effectively making it a no-growth stock.
By 2030, the company’s pipeline will look different and there may be new products on the horizon. But if the business isn’t a whole lot bigger by the end of the decade, then it’s easy to see why investors aren’t overly bullish on Pfizer’s stock right now, and why it may continue to be an underwhelming buy in the years ahead.
Should you buy Pfizer’s stock today?
Pfizer’s stock has been struggling and investors who buy it will have to take a leap of faith and assume that the company can deliver on its forecast. If that turns out to be the case, the stock may not have much further to decline from where it is right now. While it may not consistently outperform the market, it could still be a good buy, particularly for investors who value the stock for its dividend, which yields 6%.
Not every stock is going to be a market-beating investment, and I don’t expect Pfizer will fall into that category based on where the business will be going in the next five to 10 years. But if you’re OK with that and your priority is dividend income, then this can still be a good stock to own.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Pfizer. The Motley Fool has a disclosure policy.