ABOT – An Undervalued Pharma Pick

The Market Puzzle

The broader market has seen remarkable performance, with the KSE-100 Index posting a 55% gain in CY25 year-to-date. In stark contrast, Abbott Laboratories Pak Ltd (ABOT) has been underperforming the KSE-100 by a staggering 66% over the same period, with its stock price down 15%. Why is a company with strong financial results underperforming so dramatically in a booming market, and could this present an opportunity? This analysis delves into ABOT’s solid fundamentals to explore the disconnect between its business performance and its stock price.

A Look at ABOT’s Strong Financial Health

Despite its recent stock performance, ABOT‘s underlying business is performing exceptionally well. The company’s financial results point to a healthy and growing operation.

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Impressive Profit Growth

For the first nine months of CY25 (9MCY25), the company reported a significant 36% year-over-year growth in earnings. This robust growth was driven by a combination of key factors:

• Stable sales volumes
• Price adjustments for certain deregulated drugs
• A decline in input costs

This growth was achieved despite headwinds, as the company saw a twofold increase in ‘Other charges’ due to a Rs164mn exchange loss and Rs278mn in provisions for expected trade debt losses. Overall, revenues grew by 13% during this period, while gross margins saw a significant 6 percentage point expansion to a healthy 34%.

A Breakdown of ABOT’s Business Segments

A closer look at ABOT’s segment performance reveals a well-diversified and resilient business model, with each unit contributing to its overall performance. The results for the 9MCY25 period highlight this diversification.

• Pharmaceuticals: The Core Business This segment remains the main contributor to the company, making up approximately 70% of its top-line revenue. It posted a strong 16% revenue growth, and its gross margins increased by 5 percentage points to 33%.
• Nutrition: The Star Performer Contributing 21% of total sales, the nutrition segment was the star performer. It achieved an impressive 19% revenue growth and saw a significant 9 percentage point margin expansion to 44%—the highest in the company. This segment’s success is driven by key brands such as Pediasure, Ensure, and Glucerna, which are household names in the market. ABOT dominates this space, commanding an estimated 90% market share in Pakistan’s nutrition segment.
• Diagnostics and Other Segments The Diagnostics segment contributes 7% to revenues. While its revenue declined due to a one-off government tender in the previous year, its margins still increased by 2 percentage points year-over-year to 16%, demonstrating underlying operational efficiency.

Why ABOT Appears Undervalued

The core of the investment thesis rests on a clear valuation disconnect: the company’s strong operational performance does not appear to be reflected in its current stock price.

A Quick Guide to the P/E Ratio

The Price-to-Earnings (P/E) ratio is a common way to value a stock. Think of it as the price you pay for each dollar of a company’s earnings. A lower P/E can suggest a stock is more affordable compared to its peers or its own history.

ABOT’s Current Valuation

Based on its P/E ratio, ABOT appears undervalued from multiple angles:

• Current P/E Ratio: ABOT trades at an annualised P/E of 14.3x.
• Compared to its History: This represents a ~21% discount to its own 5-year historic average P/E of 18x.
• Compared to its Sector: It also trades at a ~13% discount to the sector average P/E of 16.4x.

This data indicates that the stock is currently trading at a lower valuation than both its historical average and its industry peers.

Company’s Future Strategy

ABOT’s management is focused on driving future growth, with a clear strategy centred on its primary market. The company is concentrating on its domestic market, which accounts for 96% of its sales. Key strategies to improve sales volumes include:

• Improving the availability of its products.
• Using competitive pricing.
• Enhancing marketing efforts for over-the-counter (OTC) products like pain relievers and vitamins.

This focus on enhancing the availability and marketing of non-essential and OTC products directly leverages the pricing flexibility afforded by deregulation, which was a key driver of margin expansion.

While exports to Afghanistan, which contributed as much as 2.6% to revenues in 9MCY25, are now negligible (less than 1%) due to trade suspensions, the company remains optimistic about trade resuming in the future.

A Disconnect Between Price and Performance

Abbott Laboratories Pak Ltd (ABOT) presents a clear case of a company with strong financial health, demonstrated by solid earnings growth, expanding margins, and dominant positions in key segments like nutrition. Despite these robust fundamentals, its stock has underperformed the broader market and currently trades at a significant valuation discount to both its own history and its sector peers. This significant disconnect between operational strength and market valuation presents a compelling case for investors prepared to look beyond short-term market sentiment and focus on underlying fundamentals.

Disclaimer

This article is for informational purposes only and does not constitute a solicitation or an offer to buy or sell any securities. The information contained herein has been compiled from sources believed to be reliable, but its accuracy and completeness have not been independently verified and are not guaranteed. This analysis does not take into account the investment objectives, financial situation, or particular needs of any specific investor. Readers should conduct their own research and consult with a qualified financial advisor to determine the suitability of any investment. All opinions and estimates expressed in this report are subject to change without notice. The author and publisher of this report accept no liability whatsoever for any direct or consequential loss arising from any use of this material.

⚠️ This post reflects the author’s personal opinion and is for informational purposes only. It does not constitute financial advice. Investing involves risk and should be done independently. Read full disclaimer →