To get an idea about the growth prospects of a pharmaceutical company, one of the best places to start is with a look at its pipeline of drug candidates. 

One that has a particularly exciting crop of treatments under development is AstraZeneca (AZN -0.48%), which boasts 10 drugs currently in the last stages of development and four new drugs brought to market in just the past year. Rivals like Gilead and GlaxoSmithKline lag behind, with only three and four drugs, respectively, currently coming to market or in final stages of development. AstraZeneca's stock is up 12% so far in 2021. Is it too late for investors to join in this growth story?

Scientists working in lab

Image source: Getty Images.

A near-perfect pipeline

Analysts are bullish on AstraZeneca's research and development efforts. It has six treatment candidates in phase 3 clinical trials. And the company expects the FDA to approve its lupus drug, anifrolumab, in the second half of 2021. The market potential for anifrolumab is up to $3.2 billion by 2025, and the drug could occupy almost a third of market share in this space. Anifrolumab has the potential to be a blockbuster, and it could be a great growth driver for AstraZeneca.

Beyond that in-house R&D, AstraZeneca is using mergers and acquisitions to further fill its pipeline. It's currently in the process of acquiring U.S.-based Alexion Pharmaceuticals for $39 billion. The Federal Trade Commission has cleared the deal, but additional clearances are pending in the U.K., EU, and Japan. Assuming those regulators give the deal their approval, Alexion's pipeline could produce as many as 11 new drugs for AstraZeneca over the next few years. Alexion has announced that its current drugs generate $9 billion to $10 billion in revenue per year and that bringing the drugs from the pipeline to market could provide a 10% growth rate from now through 2025. If the acquisition goes smoothly, this acquisition will pay for itself in three to four years, and the addition of Alexion to AstraZeneca's existing prospects could make it one of the most promising pipelines in the industry. .

Cheap at these levels 

AstraZeneca currently trades at a 14.95 forward price-to-earnings ratio . Compared with rivals Gilead and GlaxoSmithKline, which trade at forward P/Es of 9.38 and 14.03, shares don't look exceptionally cheap -- but looking at historical valuations for AstraZeneca tells a different story. Over the past five years, the company's average forward P/E has been about 19, so its current valuation of 14.95 shows that this stock is on sale. 

Despite making a huge move in its bid to acquire another fast-grower in Alexion Pharmaceuticals, the stock hasn't taken off. It bid $39 billion in a cash-and-stock deal that left Alexion investors with $60 in cash and 2.12 shares of AstraZeneca for each Alexion share they own. No debt was used in the deal, which is great, as it won't add additional financial burden to the company.

AstraZeneca's current cash position is about $7.5 billion -- a very sizable cushion when compared with annual revenues ($26.6 billion last year) and expenses (almost $23 billion). AstraZeneca paid out $3.5 billion in dividends last year, meaning its cash position could cover almost two years of payments if the company's profitability were to come under pressure.

With a consensus EPS estimate for the next fiscal year at $3.89, investors could see a stock price of $81 if the stock corrects to the upside of market fair value. This could provide an almost 30% return excluding dividends (AstraZeneca also offers a 2.48% dividend yield which is almost double the SPDR S&P 500 ETF at just 1.3%). 

Fast growth over the next few years

In the first quarter, AstraZeneca achieved total revenue growth of 11% year over year, of which 4 percentage points came from sales of its COVID-19 vaccine. Sales in its oncology segment grew by 16% year over year, and revenues from its recently formed cardiovascular, renal, and metabolic unit grew by 15%.

Its two drugs for non-small cell lung cancer, Tagrisso and Imfinzi, increased their sales in the quarter by 13% and 17%, respectively. Meanwhile, its cancer therapy Lynparza posted 33% sales growth, adding to the tremendous revenue gains AstraZeneca is currently experiencing. Combine that with the promising growth from drugs like anifrolumab and Fasenra (for asthma), which have potential to bring in $1 billion annually in sales each, the momentum is clearly on AstraZeneca's side.

With a great lineup of drugs in the market, potential blockbuster treatments in the pipeline, and an acquisition that itself can drive 9% to 10% returns over the next few years, AstraZeneca carries a lot of promise. Analysts' forecast for this fiscal year is for revenue growth of 23.3% -- nearly five times its average rate over the past five years. Investors might have a chance to capture a lot of upside buying now.