Is There Still Time To Buy GlaxoSmithKline plc?

Can GlaxoSmithKline plc (LON: GSK) move higher, or are the company’s shares overvalued?

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Right now I’m looking at some of the most popular companies in the FTSE 100 and wider market to try and establish if there is still time for investors to buy in.

Today I’m looking at GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) to ascertain if its share price has the potential to push higher.

Current market sentiment

The best place to start assessing whether or not Glaxo’s share price has the potential to push higher, is to take a look at the market’s current opinion towards the company.

gskUnfortunately at present, it would appear that the market is somewhat doubtful of Glaxo’s future plans as the company has suffered a number of setbacks during recent weeks. Specifically, during the past week alone, Glaxo has announced the withdrawal of a European Union application related to its ovarian cancer treatment Votrient, and company’s chronic coronary heart disease treatment, Darapladib failed to meet targets set in the treatment’s phase III trial. In addition, Glaxo has stopped testing its MAGE-A3ii cancer immunotherapeutic. These failures have left investors wondering what the future holds for Glaxo’s earnings growth potential.   

Additionally, Glaxo has come under scrutiny for allegedly bribing Chinese doctors for prescribing the company’s treatments. These allegations have had a dire effect on the company’s Chinese sales.

Upcoming catalysts

Even though Glaxo’s investors have been left wondering what’s next for the company after these recent failures, Glaxo’s investors still have plenty to look forward to.

Indeed, Glaxo still has numerous treatments under development, the most promising of which is the company’s experimental HIV protection drug. This new HIV treatment is already showing positive results in tests and has been described as “really promising”.

To compliment the development of new treatments, Glaxo is working on expanding overseas, recently acquiring an additional holding in the company’s Indian and Indonesian consumer healthcare units. Further, Glaxo’s management has stated that the company will invest £130m within Sub Saharan Africa over the next five years to increase capacity and build the foundations for long-term growth.   

Valuation

Surprisingly, despite recent disappointments Glaxo’s shares currently trade at a high valuation, in comparison to the company’s historic average. Specifically, Glaxo’s shares currently trade at a forward P/E of 15.5, above the company’s ten-year average P/E of just under 11. What’s more, City analysts currently predict that Glaxo’s earnings will fall during 2014, which makes the company look expensive when taking into account falling earnings. 

That said, after factoring in Glaxo’s defensive nature and the company’s juicy 5% dividend yield I seems as if Glaxo’s shares are worth this high valuation. 

Foolish summary

So overall, I feel that there is still time to buy GlaxoSmithKline at current levels

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Rupert does not own any share mentioned within this article. The Motley Fool has recommended shares in GlaxoSmithKline. 

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