Why a Strong Quarter Wasn't Enough to Send Shares of Pfizer Soaring

A strong quarter and earnings beat can sometimes give a stock a big boost. But when that doesn't happen, it usually means there are other factors that are weighing on a business and give investors reason for pause. After all, one good quarter is just that -- one quarter. What matters is the long run, and where the business will be in not just the next few months, but the coming years.

Pfizer (NYSE: PFE) is a company that many people feel uncertain about these days. And that's likely why, although it reported a strong quarter and even increased its guidance recently, its stock hasn't been taking off.

Pfizer beat expectations and raised guidance

On Nov. 4, Pfizer posted its latest results, which looked good when compared to Wall Street projections. Sales of $16.65 billion were better than expectations of $16.58 billion, and adjusted earnings per share came in at $0.87 compared to the $0.63 that analysts were expecting. The company also increased its guidance for the year, now forecasting its adjusted earnings per share to be within a range of $3.00 to $3.15, up from its previous guidance of $2.90 to $3.10.

Despite the strong quarter and guidance, the healthcare stock hasn't moved much and remains around $24. This year, it's trading down by 8% and has widely underperformed the overall market -- the S&P 500 has risen by more than 13%. Even though Pfizer is trading at an incredibly low forward price-to-earnings multiple of less than 9, few people are loading up on the stock.

Why don't investors want to buy Pfizer shares?

If you had the opportunity to invest in a company that's trading at an extremely low earnings multiple, that recently beat expectations and raised guidance, and that also offers a high dividend yield of 7%, it might seem like a no-brainer buy. And yet, Pfizer's stock can't seem to get any traction. This is a clear sign that there are significant broader concerns weighing on investors and analysts.

The big one is future growth. Multiple top drugs for Pfizer face patent cliffs in the near future, including Eliquis, Vyndaqel, and Ibrance. To help strengthen its pipeline and growth prospects, the company has been leaning both on in-house drug development and on acquisitions (the biggest was its $43 billion acquisition of oncology company Seagen in 2023). But without a big drug approval to get excited about, a nagging concern persists that Pfizer may still find itself in trouble: Its earnings may deteriorate, and its high-yielding payout may not end up being safe.

Pfizer isn't as risky as it looks

Pfizer is facing adversity, and there are growth challenges ahead, but I don't think it's a risky investment overall. The company has vast resources and decades of experience to tap into to help turn things around. No patent lasts forever in the healthcare sector, but all it takes is one big winning product to turn a pharma stock's fortunes around -- and Pfizer currently has more than 100 possible drug candidates in its pipeline. While its top line has been declining of late, this is still a growth-focused company, and it's one that you shouldn't count out in the long run.

It may take a while before there's a big catalyst to send Pfizer's stock soaring, but if you're willing to buy and hold for multiple years, this can be a great stock to simply leave in your portfolio. Pfizer still possesses some solid fundamentals, and its low valuation can set you up for some oversized gains in the future.

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.