This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
I'll cut right to the chase: Yes, AstraZeneca plc (NASDAQ: AZN) could be a millionaire-maker stock. But no, it's not very likely for most investors. Really, those are the correct answers for nearly any stock when asked if it could make someone a millionaire.
What's more instructive, though, is to understand what it would take for a given stock to deliver the returns to build such a fortune. It's also helpful to know what kind of gains a stock could realistically generate, even if it probably won't be a millionaire-maker. You might be surprised how AstraZeneca fares on both of these fronts.
What it would take
Let's first delve into what it would take for AstraZeneca to be a millionaire-maker. Of course, it depends largely on two critical factors: (1) the initial investment, and (2) what the investing time horizon is.
Investing writers like myself usually look at an initial investment of $10,000. For that amount to grow to $1 million, AstraZeneca's share price would need to multiply by a factor of 100. With the big drugmaker's market capitalisation currently hovering around $140 billion, that would require AstraZeneca's market cap to explode to $14 trillion.
Given a long enough period of time, that kind of growth could happen. However, we're talking about a really long timeframe. For example, if AstraZeneca's stock price appreciated 15% annually, it would take around 33 years to become a 100-bagger. Over the last 20 years, by the way, the big pharmaceutical stock has increased at an annual rate close to 2.5%.
Starting with a much larger initial investment could easily make AstraZeneca a millionaire-maker. If you invested $800,000 in the stock, for instance, you'd only need a 25% return to reach $1 million. Of course, most investors don't have that much money to invest in a single stock.
What's more likely
Now that's out of the way, let's turn to something more practical: What kind of return could AstraZeneca realistically generate? You'll probably like the answer to this one.
While AstraZeneca hasn't performed all that great over the last two decades, it's a different story over the last two years. That's because AstraZeneca is a much different company than it was 20 years ago and even 10 years ago.
Today, AstraZeneca has a lineup loaded with products with strong sales growth. Cancer drugs Tagrisso, Imfinzi, Lynparza, and Calquence are rocking. Diabetes drug Farxiga and asthma drug Fasenra continue to enjoy solid momentum.
The pharma company's pipeline is also strong. AstraZeneca has over 170 clinical programs in development. These include 24 late-stage programs. One of those is the company's COVID-19 vaccine AZD1222. Even though AstraZeneca caused confusion with its interim efficacy results announced last month, it could still be a major player in the coronavirus vaccine market.
Wall Street analysts project that AstraZeneca will generate average annual earnings growth of more than 19% over the next five years. If the stock appreciates at a similar rate, an initial investment of $10,000 would grow to nearly $24,000 in five years.
What if AstraZeneca managed to keep up that growth rate for another 10 years? The initial investment would swell to over $135,000. To be candid, it would be difficult for AstraZeneca to deliver that kind of growth over a 15-year period. However, with the company's strong pipeline it's not out of the question.
The bottom line is that AstraZeneca probably won't make you a millionaire. However, it could make you plenty of money.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
