GlaxoSmithKline‘s (LSE: GSK) (NYSE: GSK.US) recent results showed a company that is making excellent progress compared to the prior period in all regions of the world except for China.
In fact, performance in China was so bad that even the perma-bears in the healthcare sector were not anticipating a fall of 60% in revenues. Quite simply, a shock was expected and a howler was delivered.
So, yesterday’s news that GlaxoSmithKline will be making changes across the whole company (but really aimed at appeasing China) should be seen as good news. Of course, its share price didn’t move much on the news, but it may do, in time, as GlaxoSmithKline seeks to repair the damage done to its sales in China.
China is a crucial market for most global companies and GlaxoSmithKline is no exception. Indeed, for a company to help you to retire earlier than you had anticipated, it is highly likely that they will need to be very successful in China, as it looks set to become the biggest economy in the world.
However, the decision to buy GlaxoSmithKline right now is perhaps best evaluated by focusing on the share price and concluding whether or not its shares offer good long-term value at current levels.
Indeed, GlaxoSmithKline — one of the best quality pharmaceutical companies in the world whose drug pipeline is up there with the best of them — trades at a huge discount to the healthcare industry sector to which it belongs.
This discount is wider than you may realise, with the healthcare industry sector having an average price to earnings (P/E) ratio of 19.8 and GlaxoSmithKline currently trading on a P/E of 14. In other words, GlaxoSmithKline trades at a discount of just under 30% when compared to its industry group.
Of course, this discount must partly be attributable to the problems the company is having in China and, while they may not yet have run their course, it seems as though they are priced in twice, with a little extra thrown in for good measure. Buying GlaxoSmithKline shares now could mean your pension pot ticks up nicely over the medium to long term.
Peter owns shares in GlaxoSmithKline. The Motley Fool has recommended GlaxoSmithKline.