GSK and Sopheon’s share prices have beaten the FTSE 100 by 20%, is it time to buy?

Do GlaxoSmithKline plc (LON: GSK) and Sopheon plc (LON: SPE) offer further FTSE 100 (INDEXFTSE: UKX) outperformance potential?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Since the start of the year, the performance of the FTSE 100 has been relatively disappointing. It has declined by 5%, with investor sentiment coming under pressure in recent months after the index reached an all-time high in May.

However, a number of shares have been able to beat the index during this time. GlaxoSmithKline (LSE: GSK) has performed well, rising by around 15%. Similarly, software and services provider Sopheon (LSE: SPE) gained 10% on Monday following its trading update. This takes its gain for 2018 to around 180%. Looking ahead, could there be further growth to come from either stock?

Impressive performance

Sopheon’s trading update showed that the third quarter of the year was exceptionally strong. Momentum since the second quarter has been maintained, and a number of further transactions have been signed. This has resulted in a record third quarter. Contract wins have included two material contracts booked during the final days of the quarter which have helped to break revenue visibility through the $30m level.

The company remains optimistic on its future outlook. It views the continued delivery of commercial results as indicative of the growing maturity of the market that it serves, while its sales pipeline activity for the balance of the year remains robust.

Sopheon is expected to report a rise in earnings of 27% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.9, which suggests that it continues to offer good value for money. Therefore, even after its sharp rise in value over recent months, there could be further upside ahead.

Improving outlook

The prospects for GlaxoSmithKline also appear to be improving. The company has the potential to capitalise on the world’s ageing population through its focus on consumer healthcare products, vaccines and pharmaceutical products. Its recent decision to focus on a smaller number of higher-reward products within its pipeline may provide it with a stronger growth outlook over the long run, which could help it to justify a higher valuation.

At the present time, the company has a dividend yield of around 5.2%. This suggests that there could be a margin of safety on offer. With the company expected to report a 4% rise in earnings in the next financial year, dividend growth could be restarted after an extended period of flat payments. This has helped to boost the company’s dividend cover so that it now stands at 1.4. This suggests that there could be improving income investing potential on offer over the medium term.

With GlaxoSmithKline having a diverse and relatively defensive business model, it could prove to be popular should the FTSE 100 experience uncertainty over the coming years. After a 10-year bull market, defensive shares could become more enticing to long-term investors over the next few years, with the chances of a further decade of uninterrupted stock market growth being unlikely.

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.

Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Black father holding daughter in a field of cows
Investing Articles

A FTSE 100 share that could create generational wealth

Investing in FTSE shares can help individuals pass down a significant chunk of cash to their children and grandchildren, data…

Read more »

Investing Articles

Here’s what the BT share price could mean for passive income investors

The BT share price has been falling for years, but that might be about to change. And dividends could be…

Read more »

Investing Articles

At £4.76, is the Aviva share price a steal? Here’s what the charts say!

Aviva has outperformed the Footsie over the last year. But is there still value in its share price? This Fool…

Read more »

Photo of a man going through financial problems
Investing Articles

Does a 43% price drop make this undervalued UK stalwart one of the best cheap shares to buy now?

After losing a third of its value of the past five years, this might be one of the most undervalued…

Read more »

Businessman use electronic pen writing rising colorful graph from 2023 to 2024 year of business planning and stock investment growth concept.
Investing Articles

My top 3 picks today for a £20,000 Stocks and Shares ISA

Here are three very different investments to consider for a Stocks and Shares ISA, covering both the UK and US…

Read more »

Businesswoman calculating finances in an office
Investing Articles

The Darktrace share price has been surging — and it could climb higher

I think the Darktrace share price could have more room to run. Despite the competitive AI industry, the firm looks…

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

With its 7% dividend, should I be watching the Aviva share price?

Dividend investors will struggle to find many companies with a yield above 7%, so should the Aviva share price be…

Read more »

Investing Articles

Could this be one of the FTSE 100’s best cheap dividend shares?

Looking for the best dividend growth shares to buy? Our writer Royston Wild thinks this FTSE 100 housebuilder might well…

Read more »