Why I’d invest in the GlaxoSmithKline share price at today’s level

The GlaxoSmithKline share price is trading at a discount to its 10-year P/E ratio and offers a dividend yield of just under 6%.

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.

Investor sentiment towards the GlaxoSmithKline (LSE: GSK) share price has steadily deteriorated since the beginning of 2020. The shares, which were changing hands for over 1,800p at the beginning of 2020, are worth less than 1,400p today. 

This performance suggests the company has had a rough time of it this year. But that’s just not the case. In fact, Glaxo’s underlying fundamental performance has been significantly more robust than many other FTSE 100 businesses. 

Sales under pressure 

According to its most recent trading update, Glaxo’s sales fell 5% during the third quarter of 2020. However, operating profit increased by 2%. This reflected a significant decline in operating expenses. 

The group’s sales have come under pressure this year due to a decline in vaccine sales. These fell 9% year-on-year in the third quarter due to coronavirus disruption. Visits to vaccination centres declined, and some have closed. 

I think this has to be a temporary headwind. Conditions such as shingles haven’t gone away. Patients are only putting off treatments. When the pandemic has subsided, these clients will return, possibly in greater numbers. 

The same can be said for Glaxo’s pharmaceutical business in general. Sales declined 3% overall in the quarter. The pandemic was also partly to blame. Once again, I think this decline in demand is only likely to be temporary. 

This is why I’m considering adding the GlaxoSmithKline share price to my portfolio after recent declines. Yes, sales have ticked lower this year but, as I said, I reckon the fall is only likely to be a temporary factor. 

At the same time, the firm is investing in new products. This year, Glaxo’s research and development team have progressed several HIV treatments and vaccines. In the last quarter alone, the group received three major regulatory approvals, including asthma and multiple myeloma treatments. 

GlaxoSmithKline share price bargain

Considering all of the above, I’m optimistic about the long-term outlook for the pharmaceutical group. That’s why I’m planning to use the recent decline to snap up a share of this world-leading business. 

Granted, it could be a year or two before the business returns to growth. To some extent, Glaxo’s near-term outlook is tied to the pandemic. The sooner it is over, the sooner vaccination programmes will be able to restart. 

Still, while the company may continue to see disruption in the near term, investors will be paid to wait for its recovery. The GlaxoSmithKline share price currently offers a dividend yield of just under 6%. I think that looks particularly attractive in the current interest rate environment. 

Moreover, shares in the pharmaceutical giant are changing hands at a forward price-to-earnings (P/E) ratio of just 11.6. When looking for cheap stocks, I like to compare the company’s current valuation to its historical average. In this case, the comparison seems favourable. The GlaxoSmithKline share price is trading at a discount to its 10-year P/E ratio of 13.6. 

When considering the company’s long-term growth potential, I think this discount is unwarranted. 

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.

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.

More on Investing Articles

Investing Articles

After it crashed 25%, should I buy this former stock market darling in my Stocks and Shares ISA?

Harvey Jones has a big hole in his Stocks and Shares ISA that he is keen to fill. Should he…

Read more »

happy senior couple using a laptop in their living room to look at their financial budgets
Investing Articles

How’s the dividend forecast looking for Legal & General shares in 2025 and beyond?

As a shareholder, I like to keep track of the potential dividend returns I could make from my Legal &…

Read more »

artificial intelligence investing algorithms
Investing Articles

Could buying this stock with a $7bn market cap be like investing in Nvidia in 2010?

Where might the next Nvidia-type stock be lurking in today's market? Our writer takes a look at one candidate with…

Read more »

Investing Articles

Is GSK a bargain now the share price is near 1,333p?

Biopharma company GSK looks like a decent stock to consider for the long term, so is today's lower share price…

Read more »

Snowing on Jubilee Gardens in London at dusk
Investing Articles

Could December be a great month to buy UK shares?

Christopher Ruane sees some possible reasons to look for shares to buy in December -- but he'll be using the…

Read more »

Young mixed-race couple sat on the beach looking out over the sea
Investing Articles

Sticking to FTSE shares, I’d still aim for a £1,000 monthly passive income like this!

By investing in blue-chip FTSE shares with proven business models, our writer hopes he can build sizeable passive income streams…

Read more »

Growth Shares

BT shares? I think there are much better UK stocks for the long term

Over the long term, many UK stocks have performed much better than BT. Here’s a look at two companies that…

Read more »

British Pennies on a Pound Note
Investing Articles

After a 540% rise, could this penny share keep going?

This penny share has seen mixed fortunes in recent years. Our writer looks ahead to some potentially exciting developments in…

Read more »