Is Pfizer's Stock Overvalued Or Undervalued?

Pfizer Inc. PFE shares have lagged the S&P 500 in 2021, generating a year-to-date total return of 16.6%.

Pfizer has gotten plenty of headlines for its COVID-19 vaccine, but investors may be wondering just how much value is left in the pharma giant’s stock?

Earnings: A price-to-earnings ratio (PE) is one of the most basic fundamental metrics for gauging a stock’s value. The lower the PE, the higher the value. For comparison, the S&P 500’s PE is currently at about 34, more than double its long-term average of 15.9.

Pfizer’s PE is currently 19, significantly below the S&P 500 average as a whole. Pfizer's PE ratio is down 41.7% over the past five years, suggesting the stock is currently priced at the low end of its historical valuation range.

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Growth: Looking ahead to the next four quarters, the S&P 500’s forward PE ratio looks much more reasonable at just 20.3. Pfizer’s forward earnings multiple of 11.1 is still well below the multiple of the S&P 500 as a whole, making Pfizer stock look undervalued.

Pfizer’s forward PE ratio is even significantly lower than its health care sector peers, which are currently averaging a 16.3 forward earnings multiple.

Yet when it comes to evaluating a stock, earnings aren't everything.

The growth rate is also critical for companies that are rapidly building their bottom lines. The price-to-earnings-to-growth ratio (PEG) is a good way to incorporate growth rates into the evaluation process. The S&P 500’s overall PEG is currently about 1; Pfizer’s PEG is 1.53, suggesting Pfizer is currently overvalued after accounting for its modest growth.

Price-to-sales ratio is another important valuation metric, particularly for unprofitable companies and growth stocks. The S&P 500’s PS ratio is currently 3.14, well above its long-term average of 1.62. Pfizer’s PS ratio is 4.24, more than 35% higher than the S&P 500.

Finally, Wall Street analysts see value in Pfizer stock over the next 12 months. The average analyst price target among the 18 analysts covering Pfizer is $46, suggesting about 10.7% upside from current levels.

The Verdict: At its current price, Pfizer stock appears to be slightly undervalued based on a sampling of common fundamental valuation metrics. The stock last traded at $41.41.