The Motley Fool

This is what I’d do about the GlaxoSmithKline share price right now

Over the past five years, the GlaxoSmithKline (LSE: GSK) share price has hardly budged. Excluding dividends, the stock has returned -4.3% since the beginning of 2014, underperforming the FTSE 100, which returned 19.8% over the same time frame.

However, when you include dividends, the picture is significantly different. Including distributions to investors over the half-decade, the GlaxoSmithKline share price has underperformed by 2.7% per annum. Over the past decade, the stock has produced a total return of 8.5% compared to 11.4% for the FTSE 100, index including dividends.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US$12.3 TRILLION out of thin air…

And if you click here we’ll show you something that could be key to unlocking 5G’s full potential...

Based on this performance, it’s difficult to tell what the future holds for the GlaxoSmithKline share price. The fact that the stock has gone nowhere over the past five years doesn’t give me any confidence it will be any different over the next five.

That being said, past performance rarely dictates future returns. Just because the company’s shares have underperformed is in the past, doesn’t mean they will continue to do so. With this in mind, I’m going to try and determine what the future holds for the stock.

What does the future hold?

To figure out whether or not the GlaxoSmithKline share price is an attractive investment, it’s vital to consider why it’s underperformed in the past, and what its future holds.

Considering the group’s earnings performance over the past six years, I don’t think it’s unreasonable to say that the business has gone backwards since 2013. Indeed for 2018, the company reported a net profit of £3.6bn, down around a third in five years. This seems to explain why the GlaxoSmithKline share price has underperformed the FTSE 100 over the past five years.

But now it looks as if this trend is coming to an end. Looking at City projections, it seems as if analysts are expecting the group to report earnings growth of 24% in 2019, followed by 5.2% in 2020. If the company manages to meet these targets, it would be a vast improvement for the business. Over the past five years, earnings per share have only fallen. Analysts are expecting the firm to report a net profit of £5.6bn for 2019, which will be a six-year high if it does.

If management’s efforts to turn the business around yield concrete results this year, then I think there could be a re-rating of the shares. At the time of writing, shares in the pharmaceutical group are changing hands as a forward P/E of just 13.5, that’s below the global pharmaceutical industry average of 18.

To put it another way, the GlaxoSmithKline share price seems to be undervalued by approximately 30% compared to its international peers.

The bottom line

Considering this valuation gap, and after factoring in the City’s growth projections for 2019, I think it could be worth buying the GlaxoSmithKline share price right now.

If the company does manage to return to growth over the next 12 months, I think the stock deserves to trade at a much higher valuation. Investors buying today can also pocket a 5.3% dividend yield while they wait for the recovery to take shape.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more.

Rupert Hargreaves owns no share mentioned. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

The renowned analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply enter your email address below to discover how you can take advantage of this.

I would like to receive emails from you about product information and offers from The Fool and its business partners. Each of these emails will provide a link to unsubscribe from future emails. More information about how The Fool collects, stores, and handles personal data is available in its Privacy Statement.