The GSK (LSE: GSK) share price has surged in value over the past few months. Shares in the pharmaceutical giant have increased by nearly 13% since their March low.
However, despite this performance, the stock remains around 13% below the level at which it began the year. Therefore, now could be a good time for long-term investors to snap up a share of this FTSE 100 income and growth giant while it trades at a depressed level.
GSK share price on offer
The GSK share price has remained depressed this year despite a positive fundamental performance from the business. Pre-tax profits in the second quarter of the year were £2.6bn, up from £1.3bn a year earlier.
Unfortunately, the company has been suffering from a fall in vaccination rates. As one of the world’s largest producers of vaccines, a large percentage of GSK’s yearly sales rely on global vaccination programmes.
According to the firm, many of these programmes have been put on hold as lockdowns have cut the number of patients receiving standard medical procedures.
Revenues from the group vaccines business declined by 27% in Q2. This is disappointing, but it should be temporary. The company makes vaccines for conditions such as hepatitis and meningitis. These haven’t gone away over the past six months, and vaccination programme should resume at some point.
When they do, demand for the firm’s products are likely to pick up, and this may have a positive impact on the GSK share price. And while investors wait for growth to return at the business, the stock offers a dividend yield of 5.2%. That’s significantly above the FTSE 100 average of around 4.3%.
Unlike many other blue-chip stocks, GSK hasn’t cut its dividend payout as the group’s relatively defensive cash flows have supported the distribution through turbulent times.
GSK isn’t a one-trick pony. Its other divisions have been performing well during the crisis. Overall revenues in the second quarter declined just 2.5% as growth in other areas offset the decline in vaccines.
Margin of safety
As well as the company’s defensive fundamentals, the stock also appears to offer a margin of safety at current levels. The GSK share price is currently trading at a forward price-to-earnings (P/E) multiple of just 13.2. Based on current City projections, that figure will fall to 12.9 in 2021.
By comparison, the company’s close FTSE 100 peer, AstraZeneca, is selling at a forward P/E of 24! If the GSK share price moved to the same valuation, the stock could jump as much as 85% from current levels.
As such, now could be an excellent time to take advantage of the recent market turbulence and buy the GSK share price. Not only does the stock offer a market-beating dividend yield, but it could also have the potential to produce high total returns in the years ahead when owned as part of a diversified portfolio.
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Rupert Hargreaves owns no share mentioned. The Motley Fool UK 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.