Is GlaxoSmithKline plc A Super Growth Stock?

Despite allegations of bribery in China holding shares in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) back in 2013, they have still managed to outperform the FTSE 100 over the last year. While the FTSE 100 is up around 3% over the last year, GlaxoSmithKline has posted capital gains of 6% over the same time period. With this in mind, is now a good time to buy shares in GlaxoSmithKline? Moreover, is it still a super growth stock?

Respectable Growth

With an enviable pipeline of possible new drugs and treatments, GlaxoSmithKline has a lot of potential. Indeed, this potential is forecast to be translated into earnings growth over the next two years, where earnings per share (EPS) are expected to increase at an annualised rate of 3.6%.

GlaxoSmithKlineThis may not sound like a particularly fast pace of growth but GlaxoSmithKline is currently restructuring its business, which is both time-consuming and costly as the company seeks to focus to an even greater extent on its product pipeline and move away from consumer goods. The benefits to the company of doing this could take some time to come through but have the potential to deliver even higher growth rates in future years. So, it could be a case of some short-term pain for long-term gain.

Still, growth of 3.6% over the next two years is respectable and GlaxoSmithKline continues to offer good value for money at current levels. It currently trades on a price to earnings (P/E) ratio of 14.4 and, although this is higher than the FTSE 100’s P/E of around 13.5, it seems to be relatively good value for a high quality company such as GlaxoSmithKline.

High Quality

Indeed, this quality can not only be seen in the strength of GlaxoSmithKline’s product pipeline, but also in the returns it delivers to shareholders. For instance, return on equity in 2013 was a hugely impressive 72%, meaning for every £1 of net assets held shareholders received £0.72 of profit in just one year. So, while growth prospects in the short run may be a little underwhelming, the company continues to offer great returns to shareholders.

Although difficult to classify as a super growth stock due to its moderate EPS growth forecasts over the next two years, GlaxoSmithKline looks all-set to post strong earnings growth over the medium to long term. As a result of this (and its good relative value and high profitability), GlaxoSmithKline should still be considered a super growth stock — especially for longer term investors.

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Peter owns shares in GlaxoSmithKline. The Motley Fool has recommended shares in GlaxoSmithKline.