GSK’s (LSE: GSK) share price has dropped 18% from its 18 February one-year traded high of £22.82. Much of this followed the release of its Q1 results, despite them showing another excellent quarterly performance, which beat analysts’ earnings expectations.
Profit-taking after a previous strong run-up in price was one reason behind the pullback, I think. Another may have been the decline in sales for its General Medicines division, although other divisions did better than expected.
In either event, the drop only adds to the glaring disconnect between the stock’s share price and the underlying value of the core business. And it is in this gap that big profits can historically be made by savvy long-term investors.
So how big is it?
How good are the results?
The newest results — Q1 2026, released on 29 April — are just the latest in a string of strong numbers highlighting growing earnings momentum across GSK. And it is growth here that ultimately powers gains in any company’s share price over time.
A risk for the firm is any slower‑than‑expected uptake for new launches in its Vaccines and Specialty Medicines divisions. Another is any major problem in one of its key products, which could prompt costly litigation.
However, core operating profit rose 10% year on year to £2.8bn, highlighting strong momentum across Vaccines and Specialty Medicines. Vaccines revenue increased 15% to £3.1bn, underlining the continued strength of Shingrix and newer launches.
Specialty Medicines rose 12% to £2.6bn, illustrating how expanding respiratory and HIV portfolios are driving mix improvement. Continued investment in late‑stage pipeline assets also supports visibility on medium‑term growth, giving GSK multiple engines to power earnings ahead.
What’s the ‘fair value’ of the shares?
Price and value are very different measures for stocks. Price reflects whatever buyers and sellers are willing to trade on at a given moment. But value is determined by the strength and prospects of the underlying business.
That distinction matters for long-term investors’ profits. Over time, market prices tend to move toward a company’s true worth (‘fair value’). This is why understanding and quantifying the gap between price and value is so powerful for building returns.
Discounted cash flow (DCF) analysis helps investors understand where a stock’s fair value is. It does this by projecting a business’s future cash flows and discounting them back to the present. The more uncertain those projections are, the higher the return investors demand, increasing the discount applied.
Analysts’ DCF models differ because their assumptions vary. Using my own inputs — including a 7.2% discount rate — GSK shares are 58% undervalued at their current £18.73 level. That implies a fair value of £44.60, more than twice today’s price.
So if markets continue drifting toward fair value, this could be a great buying opportunity if those DCF assumptions hold.
My investment view
GSK’s latest results underline a business with far more earnings strength than its current share price suggests. The scale of the undervaluation versus my fair‑value estimate looks unusually large for a company of this quality.
With the shares trading at such a steep discount, I will be adding to my existing holding in the stock at these bargain-basement levels. And I also have my eye right now on other deeply undervalued shares in other sectors too.
