3 Numbers That Don’t Lie About GlaxoSmithKline plc

Roland Head explains why he’s still a buyer of GlaxoSmithKline plc (LON:GSK), despite short-term headwinds.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Wednesday’s first-quarter results from pharma giant GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) contained the usual fluctuations seen in short-term financial results, but didn’t highlight any major problems.

Indeed, my overall impression was that Glaxo is making good progress in a challenging market.

GlaxoSmithKlineIn this article, I’m going to take a closer look at three key numbers from this week’s results, and explain why I still rate this this global business as a buy, despite its full price and alleged corruption issues.

Should you invest £1,000 in Prudential right now?

When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Prudential made the list?

See the 6 stocks

1. 27%

Glaxo reported an operating margin of 27% for the first quarter, highlighting the fat profits available from its portfolio of patented and branded medicines, many of which don’t have direct competitors.

This isn’t a fluke, either — the firm’s average operating margin over the last six years is 26%.

Glaxo’s high margins and controlled capital expenditure mean that this business generates a lot of free cash flow (surplus cash after tax, interest and capital expenditure) which can be used to pay dividends.

Over the last twelve months, Glaxo has generated free cash flow of £5.6bn, covering its £3.9bn dividend bill 1.4 times, making it a pretty safe payout.

2. 6%

Glaxo’s increased its first-quarter dividend by 6%, compared to the same period of last year, highlighting its inflation-beating income credentials.

The firm’s payout has risen by an average of 6.5% per year since 2008 and its shares currently offer a yield of around 4.8%, providing long-term investors with a generous income that’s stayed ahead of inflation.

Shareholders should also get a bonus payout early in 2015, as Glaxo has said it will return £4bn to shareholders — equivalent to 82p per share — following the sale of its Oncology division to Swiss firm Novartis.

3. 185%

Unfortunately, Glaxo’s third key number is one I would be happy to do without. Glaxo has a something of a borrowing habit, which I believe the firm should make more effort to bring under control.

The pharma firm’s net gearing is currently 185%, thanks to net debt of £13.7bn. This equates to around £2.82 of debt for every share, which gives Glaxo a debt-adjusted P/E ratio of 17.7 — not especially cheap.

I’m still a buyer

Despite this, Glaxo’s size, high margins and high yield mean that I remain a buyer of the shares, which form a substantial slice of my retirement portfolio.

But there are other promising opportunities in the stock market right now. In fact, here are:

5 stocks for trying to build wealth after 50

The cost of living crisis shows no signs of slowing… the conflict in the Middle East and Ukraine shows no sign of resolution, while the global economy could be teetering on the brink of recession.

Whether you’re a newbie investor or a seasoned pro, deciding which stocks to add to your shopping list can be a daunting prospect during such unprecedented times. Yet despite the stock market’s recent gains, we think many shares still trade at a discount to their true value.

Fortunately, The Motley Fool UK analyst team have short-listed five companies that they believe STILL boast significant long-term growth prospects despite the global upheaval…

We’re sharing the names in a special FREE investing report that you can download today. We believe these stocks could be a great fit for any well-diversified portfolio with the goal of building wealth in your 50’s.

Claim your free copy now

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

> Roland owns shares in GlaxoSmithKline.

More on Investing Articles

Investing Articles

3 reasons Tesla stock may be a long-term bargain

This writer is keen to buy Tesla stock at the right price. He doesn't think it's there yet -- but…

Read more »

Investing Articles

Nvidia stock is a lot cheaper than before – or is it?

Nvidia stock has been caught in the whirlwind of market volatility. This writer has been waiting to buy, so might…

Read more »

Top Stocks

3 FTSE stocks Fools are eyeing up for choppy markets

A selection of companies listed on the UK stock market on the watchlists of four Foolish investors.

Read more »

Young Black man sat in front of laptop while wearing headphones
Investing Articles

A £10,000 investment in Rolls-Royce shares last week is now worth this…

Harvey Jones says Rolls-Royce shares couldn't escape the volatility of recent weeks, but wonders if the recent dip is a…

Read more »

The flag of the United States of America flying in front of the Capitol building
Investing Articles

Prediction: in 2 years these S&P 500 stocks will be much higher than they are today

These two S&P 500 stocks have been beaten down in recent weeks. But Edward Sheldon expects them to move much…

Read more »

Investing Articles

10% yields! Why a volatile stock market is great news for passive income investors

The recent stock market volatility has given passive income investors the chance to earn double-digit returns. But they still need…

Read more »

Close up of manual worker's equipment at construction site without people.
Investing Articles

Down 65% from its highs, this FTSE 250 stock is one to consider buying low

Shares in a strong FTSE 250 company going through a cyclical downturn have caught Stephen Wright’s attention as a potential…

Read more »

Investing Articles

£20,000 invested in a Stocks and Shares ISA 5 years ago is now worth…

Stocks and Shares ISA investors have reaped enormous returns since the pandemic, but how much money have they actually made?…

Read more »