The GSK (LSE:GSK) share price has fallen sharply over the past year. Concerns over the company’s product pipeline mean investors have sought better ways to make a return on their cash.
However, the release of stronger-than-expected quarterly results suggest now could be a good time to invest in the FTSE 100 laggard. The pharma giant has in fact lifted its full-year guidance following solid trading during the second quarter.
GSK’s shares have gained momentum in recent sessions but still look dirt cheap. The firm trades on a forward price-to-earnings (P/E) ratio of 9.6 times. This is far below industry rival AstraZeneca’s corresponding reading of 18.6 times. It’s also under the FTSE index average of 14 times.
On top of this, GSK also offers a 4% dividend yield for 2023. This is streets ahead of AstraZeneca’s 2.2% and also beats the 3.7% Footsie average. Now could be a great time to buy this cheap UK stock.
GSK impresses again
In the second quarter, revenues at GSK rose 4% year on year to £7.2bn, or 11% excluding contributions from Covid-19 treatments. Sales of its vaccines surged 18% (or 15% for non-Covid products), driven by a 20% increase for its Shingrix shingles drug.
As a result, adjusted operating profit increased 8% year on year to £2.2bn. The bottom line was also boosted by a better adjusted operating margin which, at 30.2%, was up 130 basis points.
GSK said that “strong sales growth of products launched since 2017 including in Vaccines and HIV” drove a “step change in performance” during the second quarter. Sales of the firm’s HIV division soared 13% between April and June. They now account for 22% of group turnover.
Strong recent trading means revenues are now expected to rise 8-10% in 2023. That’s up from prior guidance of 6-8%. Adjusted operating profit growth meanwhile is now projected at 11-13%. This is up from 10-12% previously.
A matter of time?
The FTSE 100 firm is on a roll right now. Indeed, its second quarter update is the latest in a string of trading statements in which trading has beaten expectations. But as I mentioned, lingering worries over GSK’s product pipeline continue to pull on its share price.
Drugs development has certainly underwhelmed versus that of AstraZeneca. And buying this blue-chip share requires taking a leap of faith, to some extent. But this is more than reflected in the firm’s rock-bottom valuation, in my opinion, which at current levels is well below the historical long-term average.
The company has a long history of producing market-leading drugs. One doesn’t get a listing on the FTSE 100 without it. And I believe it’s a matter of time before the firm makes the breakthrough that pushes its stock price higher again. Rising investment in R&D is giving GSK a better chance of hitting its targets too (spending here rose 13% in the first half to just over £2.5bn).
Healthcare spending is tipped to soar in the coming decades. And GSK’s focus on fast-growing treatment areas could see it outperform many of its industry peers over the long term.
I’ll be looking to add the pharma giant to my own portfolio when I next have spare cash to invest.
