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GSK’s share price has fallen. I’d buy the stock today

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GlaxoSmithKline (LSE: GSK) shares have underperformed over the last year. This time last year, GSK’s share price was hovering just below 1,800p. Today however, it’s near 1,400p – more than 20% lower.

At the current share price, I see the shares as a ‘buy’. Here’s a look at why I like the FTSE 100 stock right now.

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GSK shares: long-term growth potential

While GlaxoSmithKline’s recent results haven’t been amazing, the long-term growth prospects for the company remain quite attractive, in my view. Glaxo specialises in three areas of the healthcare market – pharmaceuticals, vaccines and consumer healthcare. In today’s world, these areas are all highly relevant.

Pharmaceuticals is GSK’s largest division. Last year, it generated sales of £17.6bn – about 52% of total sales. Here, the company has a broad portfolio of medicines in respiratory, HIV, immuno-inflammation and oncology. It’s also strengthening its R&D pipeline in areas such as immunology and human genetics.

Going forward, demand for pharmaceuticals should continue to grow. The growing global population, rising wealth in the emerging markets and the increasing prevalence of major health conditions will be some key growth drivers.

GSK’s vaccines division also looks to have potential. Vaccines are a crucial component of modern healthcare. Every year, they prevent two to three million deaths globally. In 2019, the global vaccine market was worth just under $50bn. However, experts believe the market could be worth over $100bn by 2027. As the leader in the vaccines space, GSK should benefit.

Finally, the consumer healthcare division shouldn’t be ignored. Here, GSK is also a market leader in pain relief, digestive health and therapeutic oral health. With demand for consumer health products set to rise in the years ahead due to the world’s ageing population, GSK looks well-placed for growth.

Share price upside

Aside from the company’s long-term growth potential, there are other reasons I like GSK shares right now. One is that the company is about to separate its consumer health business. This could add value for shareholders. My colleague Roland Head believes investors are likely to apply a higher valuation to the consumer division once it’s separated from the group.

Another reason I’m bullish here is that there’s been some interesting insider buying here recently. Regulatory filings show that late last year, senior independent director Manvinder Singh Banga – who previously spent 33 years at Unilever – spent approximately £500,000 on GSK shares. Insiders only buy stock for one reason – they expect it to go up.

Strong value

After the recent share price fall, GSK shares now trade at an attractive valuation. City analysts expect the company to generate earnings of 117p per share this year, which means, at the current share price, the stock’s forward-looking P/E ratio is just 12. At that valuation, I think the risk/reward proposition is very attractive. There’s also a dividend yield of 5.8%, which adds weight to the investment case.

Overall, I think there’s a lot to like about GSK shares right now. With the stock trading near 1,400p, I’d buy.

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Edward Sheldon owns shares in GlaxoSmithKline and Unilever. The Motley Fool UK has recommended GlaxoSmithKline and Unilever. 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.

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