The GSK (LSE: GSK) share price is a nightmare and there’s little sign of respite for long-suffering investors.
Shares in the FTSE 100 pharmaceutical giant now trade 10.18% lower than five years ago. The misery continues, with the stock falling 5.97% last week. As a benchmark, it’s up just 1.47% over the last 12 months.
I thought the stock looked great value when I bought it earlier this year, but like many before me, I’ve been faced with a reality check. So what’s going on?
Why are the shares falling and falling?
I remember the glory days when, as GlaxoSmithKline, this was widely viewed as the ultimate buy-and-hold income and growth stock.
One FTSE 100 pharma stock has delivered on its long-term potential. Unfortunately, it isn’t GSK, but rival AstraZeneca.
I’m not sure Astra even sees GSK as rival these days. Astra is now the UK’s largest company with a market cap north of £180bn. GSK is worth just a third of that at £60bn.
Like every pharmaceutical company, GSK has seen patents expire on a string of blockbuster drugs, allowing generic rivals to eat into revenues. Unlike Astra, it has struggled to offset these losses with new, high-revenue products.
CEO Emma Walmsley has worked hard to replenish its drugs pipeline, but it’s proving a struggle. To fund GSK’s R&D efforts she froze the dividend at 80p per share for yonks. In 2022, it was slashed to 44p then to 42p the year after.
Spinning off its consumer healthcare division as Haleon in 2022 was supposed to sharpen GSK’s focus on pharmaceuticals and vaccines. All it’s done is encourage investors to focus on its weaknesses instead.
Fallen FTSE 100 dividend hero
Brokers are optimistic though. They’ve set an average one-year share price target of 1,905.5p. If GSK hits that, it would mark a rise of 24% from today’s 1,535p.
The forecast yield of 3.61% is bang in line with the FTSE 100 average of 3.54%. While that’d down from the 5.5% some will remember, shareholder payouts are covered 2.6 times by earnings, which offers scope for growth.
I haven’t even mentioned the big cloud hanging over GSK: ongoing US litigation over its discontinued heartburn blockbuster drug Zantac. The shares plunged almost 10% on 3 June after a Delaware judge allowed more than 70,000 lawsuits alleging it caused cancer.
GSK is confident of its case. It notes that since 2019, 16 epidemiological studies have examined the potential cancer link and found none. Last week, it announced confidential settlements in two lawsuits filed in California involving colorectal cancer. There are plenty more left.
There’s no way I’m buying more GSK shares while this hangs over the stock. I won’t sell, either, so all I can do is hang on grimly. Even if GSK gets the right result, I’m not convinced its shares the best use of my money today. But for now, I’m stuck with them.
