It’s been a pretty tough year for investors in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US). That’s because shares in the pharmaceutical company have fallen by 11% during the course of 2014, while the FTSE 100 is up 1% over the same time period. Certainly, there have been some disappointments, such as a higher level of competition from generic products affecting profitability in the first half of the year. However, a key reason for GlaxoSmithKline’s disappointing share price performance has been weakened sentiment caused by allegations of bribery in China.
Despite this, the long-term future for GlaxoSmithKline still looks bright. Here’s why.
A Great Pipeline
At the start of the year, there was genuine excitement surrounding GlaxoSmithKline’s pipeline. It had just sold off the Ribena and Lucozade brands and was set to embark upon a renewed focus on its pipeline of new drugs. However, short-term difficulties have switched investors’ attention away from what is the key driver of the company’s long term profits: its pipeline. Indeed, it remains very strong and should allow GlaxoSmithKline to significantly increase profits in future, while also being diversified enough so as to not mean that GlaxoSmithKline is putting all of its eggs in one basket.
Profit Growth
While on the topic of profit growth, GlaxoSmithKline is this year forecast to deliver earnings per share that are roughly in-line with last year’s figures. However, next year looks set to be a different story, with the company being expected to post gains of 8%. This is above the wider market’s growth rate and shows that, while the long term is bright for the company, GlaxoSmithKline is also capable of delivering impressive numbers in the shorter term, too.
Valuation And Income
Clearly, a key part of investing is buying at the right price. Over the last year, GlaxoSmithKline’s shares have traded as high as 2000p each. Today, they are priced at just 1420p and trade on a price to earnings (P/E) ratio of only 12.7. This is considerably below the FTSE 100’s P/E of 14, which shows there is scope for an upward rerating. Meanwhile, a dividend yield of 5.7% is unlikely to be on offer indefinitely.
Looking Ahead
Certainly, there will be lumps and bumps ahead for GlaxoSmithKline, with the allegations of bribery continuing to be present. However, for long-term investors, GlaxoSmithKline looks like a great prospect. It has a well-diversified pipeline with lots of growth potential, is great value and has a top-notch yield. As such, it could make a positive impact on your mortgage repayments.
