Throughout the FTSE 100, the coronavirus pandemic has wreaked havoc. This has seen share prices reaching new lows, dividends being cut and bankruptcy worries. But for these two FTSE 100 stocks, the coronavirus pandemic has had the opposite effect, with their share prices rising sharply. The online supermarket Ocado (LSE: LON:OCDO) has seen its share price rise by 85% since the start of March, and the pharmaceutical giant AstraZeneca (LSE: AZN) has risen by over 20%. But with these firms reaching new highs, are they still worth buying?
An overvalued FTSE 100 stock There’s no doubt that Ocado has profited during the pandemic. With many people stuck at home, the online supermarket has become essential. This was reflected in its Q1 results and its current share price. But the FTSE 100 stock is now very expensive and I feel that it will decline as the crisis mentality fades.
There are a few fundamental metrics that show Ocado is overvalued. Firstly, it has a price-to-book ratio of 13, which is significantly more than the industry average of around 4. Ocado has also been unprofitable over the past three years. This means that its current share price is currently based on speculation.
Another indication of its overvaluation is its recent decision to complete an equity placing. This was done to add extra cash to the balance sheet. But it could also be seen as the FTSE 100 firm capitalising on its high share price, perhaps in expectations of a drop in the coming months. As a result, I would stay away from this stock for the time being.
The pharmaceuticals giant Shares in AstraZeneca have also seen monumental growth recently, as well as significantly outperforming other FTSE 100 stocks for many years. Its leading position in the search for a Covid-19 vaccine has driven recent growth. But the pharmaceuticals company has more to it than this. This includes significant positions in cancer, respiratory and cardiovascular drugs.
Yet while I don’t doubt the quality of AstraZeneca overall, the firm is currently trading at a P/E ratio of 90. This implies that earnings don’t currently justify the price of its shares. With a Covid-19 vaccine still a remote prospect at the moment, the FTSE 100 stock does seem very risky at its present price.
There’s also the recent news that AstraZeneca might be considering merging with US peer Gilead Sciences (NASDAQ:GILD). While there have only been tentative talks, and a merger is very unlikely, such rumours may still be a worry for shareholders as they cloud the clarity over the group’s future.
All in all, I would therefore avoid both these FTSE 100 stocks. Although both are good businesses, their current share prices are too speculative and have little room to grow. I would much prefer investing in a firm that can grow significantly in the recovery.
The post These FTSE 100 stocks are at all-time highs. Would I still buy? appeared first on The Motley Fool UK.
Stuart Blair has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. 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.
Motley Fool UK 2020
First published on The Motley Fool
