At £15.59, GSK’s (LSE: GSK) share price is 14% lower than the 52-week high of £18.23 it hit back in May. I reckon now could be a good time to take a closer look at the FTSE 100 pharmaceutical giant.
It has been a volatile year for the stock. But as a long-term investor, if I sense a strong buying opportunity, I’m content with riding out some short-term ups and downs. With that, let’s dig a little deeper into GSK.
Short-term challenges
There’s one main reason I see that explains why its share price has fallen. It’s linked to potential litigation surrounding Zantac, a heartburn drug that was taken off shelves in 2019 after being linked to causing cancer.
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Earlier this year, a judge in Delaware ruled in favour of around 72,000 lawsuits related to Zantac and its link to cancer to go forward.
This came as a shock decision. When it was revealed, it wiped almost £7bn off GSK’s value in just one day. Its share price has failed to recover since.
GSK now faces the potential of thousands of costly court cases. That clearly has investors worried. Analysts at Citi have said it could cost the firm up to £3bn in settlement fees.
Long-term growth
But looking past that, what could drive long-term growth for the business? Well, I see plenty of encouraging factors.
Its Q2 update highlighted its growing R&D pipeline. The business has now secured approvals or filings for 10 “major opportunities”. It also reported “positive data” from seven phase III trials.
In its results, the business upgraded its 2024 guidance. Sales growth should now come in between 7-9%. Core operating profit growth should sit between 11-13%.
Attractive value
Looking at its price-to-earnings (P/E) ratio, the stock looks like good value for money. It trades on a P/E of 16. As the chart below highlights, that’s significantly cheaper than industry peers such as AstraZeneca, which trades on a P/E of 38.2.
Created with TradingView
To go with that, the stock has a healthy dividend yield of 3.8%. Not only is that higher than the FTSE 100 average (3.6%), but, as seen below, it’s also higher than AstraZeneca’s 1.8% yield.
Created with TradingView
My move
With the stock trading below its 52-week high, I think now could be a smart time for investors to take a closer look at GSK and consider buying some shares.
Despite the potential challenges it could face in the months ahead, I think there’s a lot to like about the business.
Legal complications are always a threat when investing in pharma stocks. And no doubt further negative updates relating to Zantac could send its share price down again.
However, it’s a stock with a solid valuation. Plus, as it carries on growing its pipeline, I think the business is well-positioned to post strong growth in the coming years. I’ll be delving deeper into the FTSE 100 constituent in the weeks ahead.
