Why GlaxoSmithKline plc Is Sterling Value For Money

In this article I am looking at why I believe GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) provides excellent bang for your buck.

Price to Earnings (P/E) Ratio

GlaxoSmithKline’s share price has fluctuated wildly since the turn of the year. Investigations into possible sales mispractice from China through to Poland, Iraq and Jordan, combined with exclusivity losses across a variety of key products, has reined in optimism over the firm’s broadly-successful product pipeline. Indeed, the Serious Fraud Office (SFO) announced this week that it was launching an investigation into claims of corruption in foreign markets.

At current share prices the pharma giant currently changes hands on P/E multiples of 15.5 for this year and 14.7 for 2015. These figures fall around the threshold of 15 which represents reasonable value, while they also beat a forward average of 17 for the FTSE 100.

Price to Earnings to Growth (PEG) Ratio

The crushing effect of expiring patents has caused GlaxoSmithKline’s earnings to waver significantly in recent years.

GlaxoSmithKlineAnd looking at City reports this issue is not expected to subside any time soon, and earnings are expected to slip 7% this year. However, with streams of new revenues-driving products anticipated to hit the shelves in coming months, GlaxoSmithKline’s earnings are expected to surge 10% next year.

This year’s anticipated earnings slip fails to create a valid PEG rating, although 2015’s solid rebound creates a reading of 1.4, just outside the bargain watermark of 1 or below.

Market to Book Ratio

Once total liabilities are subtracted from total assets, GlaxoSmithKline carries a book value of £7.81bn. This reading produces a book value per share of £1.63, in turn creating a market to book ratio bang on the bargain watermark of 1.

Dividend Yield

Even in spite of consistent earnings pressure, and the vast sums required to keep research and development ticking along, GlaxoSmithKline’s chunky cash pile has enabled it to keep dividends ticking higher in recent years.

And forecasters expect the firm to maintain this positive trend, with the full-year payment predicted to rise from 78p per share last year to 81.5p in 2014 before striding to 83.9p next year. These projections create blistering yields of 5% and 5.2% respectively, making mincemeat of the 3.2% FTSE 100 average.

The Right Prescription For Value Hunters

Based on the formulae discussed above, I believe that GlaxoSmithKline is a terrific selection for those seeking great value growth stocks. And as the company’s growing late-stage pipeline increasingly offsets the impact of exclusivity loss on its existing earnings providers, I believe that the pharma giant will see both growth and income prospects surge over the long term.

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> Royston does not own shares in GlaxoSmithKline. The Motley Fool has recommended shares in Glaxo.