The GSK (LSE: GSK) share price of £14.44 has barely budged for decades. In fact, I could have bought into the British pharmaceutical and biotechnology stalwart (when it was known at GlaxoSmithKline) at the same price in 1998.
The thing is, the company has seen years of revenue and profit increases. So is this a rare chance to load up on a dirt cheap stock? I think the answer starts with what happened in 2022.
It had a shaky 2022
Part of the reason for GSK’s battered share price is a 20% drop that happened last year. The bulk of the fall came in July, shortly after the company demerged its consumer healthcare division Haleon.
The crucial detail is that the newly formed GSK, separate from Haleon, was going to reduce its excellent dividends. A quick look at the forward annual dividend yield (FADY) compared to previous years shows why investors might have been spooked.
| 2017 | 2018 | 2019 | 2020 | 2021 | FADY | |
| GSK Annual yield | 7.4% | 6.7% | 5.5% | 7.3% | 6.0% | 4.3% |
Another problem for GSK came in the way of a lawsuit on its heartburn medication Zantac. The drug, first introduced in 1983, has supposedly been linked to cancer. The process is still ongoing, but good news came in December when a Florida judge dismissed a case involving 50,000 plaintiffs.
The Zantac case is a short-term problem and I think that the lowered dividend is the main (and understandable) reason for the fall in share price. But on the plus side, the core of the business looks very strong.
Better financials than competitors
GSK has enjoyed year-on-year revenue increases for the better part of a decade. Margins have been stable at an excellent 60%-70% which has meant earnings have gone up too.
This puts GSK’s forward price-to-earnings ratio at around 10 which seems like good value compared to the FTSE 100 average of 14 and a steal compared to its British competitor AstraZeneca at over 20.
A company this large is hard to analyse, but based on these excellent financials it seems the £14 share price is cheap. However, I can’t ignore that the future of a drugs company relies very heavily on its R&D.
Over 60 treatments in R&D
A pharmaceutical company lives and dies by its treatments. A successful new vaccine or drug can propel a share price to incredible highs. We only need to look at the AstraZeneca and Pfizer Covid vaccines for recent examples.
How is GSK looking in this area then? Well, the company has a strong track record with drugs like HIV treatment Triumeq or the Nucala asthma product. These treatments have propelled the company to its position as one of the world’s largest drugmakers.
And there are currently over 60 new treatments in the R&D phase. If one of those hits the bullseye, we might see a skyrocketing share price. It’s a big if, of course.
Overall, I think GSK is looking solid if not irresistible. As such, it will stay on my watchlist for now.
