Over the past year, the GlaxoSmithKline (LSE: GSK) share price has underperformed the FTSE All-Share by 15%, excluding dividends. The index has returned 25%, excluding dividends, compared to GlaxoSmithKline’s return of just under 10%.
Over the past five years, the performance of the stock is not much better. It has returned just 1.7%, compared to 13.8% for the FTSE All-Share.
Including dividends, the picture is only slightly better. Over the past year, the FTSE All-Share has produced a total return of 31% to Glaxo’s 22%.
So what has been going on with the GSK share price, and can the company turn this performance around?
Rocky road ahead
Glaxo’s weak performance as an investment seems to stem from its equally weak fundamental performance as a business. City analysts believe the group is on track to report a net profit of £5.3bn this year, below the £5.7bn reported for 2020. Sales are also expected to be lower at £33.6bn, compared to £34.1bn in 2020.
The pandemic had an impact on the group, but there also seem to be other factors at work here. The company’s treatment pipeline is widely believed to have less potential than that of its peers. It will also have to deal with the loss of exclusivity over its HIV medication Dolutegravir in 2028.
On top of this, the company is planning to split itself in two next year. The plan to divide the Biopharma and Consumer Healthcare businesses that has been in the pipeline for some time.
What happens after the split is not yet clear. The company has told investors it will cut its dividend, and by divesting the Consumer Healthcare arm, the group will no longer have access to the stable profits from this division. That is where concerns about the potential of the Biotech side come in.
Consumer Healthcare has been a cash cow for the group. Glaxo will need to invest heavily in its Biotech business to replace the lost income. It could be years before these investments yield any sort of return.
GSK share price outlook
So overall, Glaxo’s track record is mixed, the company is facing an uncertain future after its breakup, and the group’s coveted dividend is for the chop. Even though the stock yields 5.1% today, that is no use if the payout is only going to be cut next year.
On the upside, CEO Emma Walmsley is optimistic that Glaxo can return to growth from 2022. She believes the company has an exciting period of growth between 2022 and 2026. And she may be right.
As the CEO, I am willing to give her the benefit of the doubt because she undoubtedly knows more about the inner workings of Glaxo than I do.
However, this company has disappointed in the past, and it is not yet clear what shape the new businesses will take when it has completed the separation at the end of next year.
With that being the case, I think investors are avoiding the GSK share price right now, due to uncertainty. And I agree. Based on the concerns outlined above, I would not buy the stock for my portfolio today.
