Is buying GlaxoSmithKline shares a good investment?

| March 28, 2022

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Key Points

  • GlaxoSmithKline shares is up over 26% in the past year.
  • GSK had an impressive 2021.
  • GlaxoSmithKline got approval for three major products.

GlaxoSmithKline (LSE:GSK) shares fared well in 2021. It wasn’t just the stock that had a stellar performance, strong commercial execution drove growth across the company as well. And over the last 12 months, GlaxoSmithKline shares are up over 26%. So, with that in mind, should I be considering this business for my portfolio?

The business model

GlaxoSmithKline is a healthcare company that creates, discovers, develops, manufactures and markets pharmaceutical products. These products include vaccines, over-the-counter medicines and other health-related consumer products.

GSK produces medicines in various therapeutic areas such as antivirals, respiratory, central nervous system, metabolic, antibacterials, cardiovascular and urogenital, dermatology, rare diseases, immuno-inflammation, vaccines and human immunodeficiency virus (HIV). It makes it’s money by selling its medical products to hospitals and individuals alike.

That being said, are GlaxoSmithKline shares a good investment for my portfolio?

GlaxoSmithKline shares versus earnings

2021 was a strong year for the pharmaceutical group. At least, that’s the impression I got looking at the numbers.

Sales increased by 5% while the adjusted EPS jumped by 9%. The pharmaceutical segment grew by 10%, the New and Specialty Medicines expanded by 26%. Meanwhile, management achieved double digits sales in its Immuno-inflammation, Respiratory and Oncology divisions all driving strong performance last year.

GlaxoSmithKline has three strategic areas. And in 2021 the company experienced excellent progress across each of them.

  1. In innovation, the company delivered three major product approvals. These products are added to the company’s exciting, high-value pipeline across its prevention and treatment of disease through organic and inorganic delivery.
  2. In performance, the GSK investment in commercial execution of speciality medicine and vaccines has helped in improving sales growth.
  3. Lastly, on trust, the company has continued to maintain sector leadership in ESG, with No. 1 ranking in the Dow Jones Sustainability Index, and continues to maintain its longstanding leadership in the Access to Medicine index. 

In my mind, this stellar performance will continue to drive GlaxoSmithKline shares price higher over the long term. So, does that make buying GlaxoSmithKline shares a good investment?

Risks lying ahead

With a price to earnings ratio little above 18, I see the GlaxoSmithKline shares at their current price to be fair. Aside from that, the company’s finance is very strong with over £4.4bn as free cash flow.

Moreover, the group has been quite busy as it has rolled out new products. This product should improve the revenue of GlaxoSmithKline and subsequently the shares. Having said that, there are some notable risks to consider.

The pharmaceutical industry is a very competitive one. Aside from that, the company could incur losses where products don’t receive final approvals. With the announcement of the spinning off of the company’s consumer healthcare business, the company’s balance sheet will be reduced. Although the spinoff may reduce the balance sheet in the short term, it should help the other businesses to become strengthened. At least, I think so, as does the management team.

There remain some notable unknown factors surrounding this business’s short-term outlook. But over the long term, it continues to look solid in my eyes. Therefore, I believe now could be a good time to add some shares to my portfolio. But it’s not the only one.

Learn more about GlaxoSmithKline shares

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Prosper Ambaka does not own shares in any of the companies mentioned. The Money Cog has no position in any of the companies mentioned. Views expressed on the companies and assets mentioned in this article are those of the writer and therefore may differ from the opinions of analysts in The Money Cog Premium services.