With AstraZeneca's share price down 11%, does the stock look like a bargain to me?

AstraZeneca's (LSE: AZN) share price is down 11% since 3 September 12 months high at £133.38.

Such a decline raises the question for me as to whether a deal will be made here.

Are shares irrelevant?

My starting point in determining whether a stock is undervalued is to look at the fundamentals of stock valuation.

In the first of these – the price-to-earnings (P/E) ratio – AstraZeneca ranks low among its competitors. It trades at a P/E of just 37.6 compared to an average of 64.6 for its peers. So it seems very cheap on this basis.

The same is true for the price-to-book (P/B) ratio. It is also the lowest among its rivals at a P/B of just 6.1 compared to a 37.3 average.

And the same applies to the price to sales (P/S) ratio as well. AstraZeneca shares are currently at 4.9 compared to a competitive average of 13.2.

To translate these small valuations into cash terms, I performed a discounted cash flow analysis using other analysts' calculations as well as my own.

This indicates that AstraZeneca shares are overvalued by 55% from their current level of £119.35. So the fair value of the stock would be £265.22.

It could be lower or higher than that, of course, given the uncertainty of the market. However, it emphasizes to me how much the stock looks like right now.

And the prospects for growth?

Ultimately, a company's share price and dividends are driven by profits. The risk for AstraZeneca is a major failure in any of its major product lines, as this could prove costly to fix. It may also damage its reputation.

However, its H1 2024 results showed total revenue up 18% from H1 2023 to $25.617bn. Therefore, the 2024 full-year guidance for the population has been increased to a percentage of the youth from the low double digits to the small ones.

Analysts predict that AstraZeneca's earnings will grow 16.4% annually through 2026. Revenue is the total amount of money a business earns, while net income refers to the money left over after expenses.

Additionally, the company expects $80bn+ in revenue by 2030, compared to $45.8bn by the end of 2023.

Where will the growth come from?

AstraZeneca has 189 new drugs in various stages of development in its pipeline. By comparison, its leading UK peer GSK he is only 71.

And hardly a week goes by without a positive announcement related to one of its product lines. The same is true in October. In the middle of the month he saw his Enhertu Obtaining approval for breast cancer treatment in the Chinese market.

Earlier this month it signed a $1.92bn deal with CSPC to access the Hong Kong company's cardiovascular drug pipeline. This includes improving the activity of low-density lipoproteins which can benefit patients with high levels of 'bad cholesterol' LDL.

And just before that came a critical review offer in the US for release Calquence cancer medicine.

My investment idea

I already own shares of AstraZeneca, based on the company's strong earnings growth potential. This should power its share price and dividend higher in the coming years, in my view.

Given this, I see the recent price drop as an undeniable bargain opportunity, and I will be buying more of the stock soon.