Down 15% and with a P/E below 9! Is the GSK share price still in deep value territory?

The GSK (LSE: GSK) share price was causing me a lot of aggro – until Wednesday (5 February). Suddenly it was top of the FTSE 100 leaderboard after jumping 7.61% in just a day!

I bought the pharmaceutical giant’s shares March and May last year, and it’s a novelty for me to see them doing well. I’m not out of the woods yet. On Wednesday morning, my stake in GSK was down almost 20%. When markets close that evening, my paper loss had narrowed to around 12%.

Finally, I’m seeing daylight. A similar thing happened with another portfolio flop Burberry. Just a few months ago I was sitting on a 40% loss. Now I’m 12% to the good. Can GSK shares do the same?

Is this stock a FTSE 100 bargain?

GSK’s full-year results for 2024 beat my personal expectations. Overall, 2024 sales grew 7% to £31bn, with speciality medicines up 19%. This helped offset a 4% drop in vaccine sales.

The board raised its 2031 revenue forecast to more than £40bn, up from the previous £38bn. Its optimism is driven by strong sales in speciality medicines, particularly in the HIV and oncology sectors.

GSK even felt flush enough to announce a mighty £2bn share buyback, its first in over a decade. That’s been a long time coming.

Despite these positive indicators, the shares are still down almost 15% over the last year, and 25% over five years. No doubt they attracted a lot of bargain seekers in that time. Most didn’t get the results they wanted. Is this another false dawn?

The shares still look terrific value and I think they’re worth considering. The trailing price-to-earnings (P/E) ratio’s a very modest 8.9. That’s significantly below the FTSE 100 average P/E of 15 times. 

The trailing dividend yield‘s solid but not spectacular at 3.9%.Glaxo’s full-year 2024 dividend will be 61p. The board’s forecasting 64p in 2025, a rise of almost 5%. I’d be happy if that was sustained over the years.

Dividends and share buybacks too

That bumper share buyback, spread over 18 months, suggests management thinks its shares are great value today.

Yet I need to curb my excitement. A number of my portfolio holdings have bounced on upbeat results over the last year. Yet the gains were often whittled away as investors took profits and broader sentiment slipped. UK shares continue to look undervalued. That may take time to turn.

The pharmaceutical industry is fraught with uncertainties, including regulatory challenges and potential legal liabilities. Last year, GSK settled a £1.8bn US class action over Zantac. Whatever its merits, GSK decided it was wiser to pay up and move on. There’ll no doubt be more.

Investors also worry about Donald Trump’s new health secretary, vaccine sceptic Robert F Kennedy, and how he’ll target big pharma. That could bring more volatility.

Yet with a longer-term view, I’m feeling upbeat. I’m pleased by GSK’s improved outlook and strategic initiatives, and thinks it’s worth considering for income and growth over the longer run. I hope to hold my shares for life.

This post was originally published on Motley Fool