He GSK The (LSE:GSK) share price is a nightmare and there is little sign of relief for long-suffering investors.
Actions in the FTSE 100 Index The pharmaceutical giant is now trading 10.18% lower than it was five years ago. The misery continues, with the stock falling 5.97% last week. For reference, it is up just 1.47% over the past 12 months.
I thought the stock was a great value when I bought it earlier this year, but like many before me, I'm faced with a dose of reality. What's going on?
Why do stocks fall and fall?
I remember the glory days when, like GlaxoSmithKline, this was widely regarded as the best stock to buy and hold, generating income and growth.
A FTSE 100 pharmaceutical stock has lived up to its long-term potential. Sadly, it's not GSK, but its rival AstraZeneca.
I'm not sure Astra would consider GSK a rival these days. Astra is now the UK's largest company, with a market capitalisation of more than £180bn. GSK is worth just a third of that, £60bn.
Like all pharmaceutical companies, GSK has seen patents expire on a number of blockbuster drugs, allowing generic rivals to take a slice of its revenue. Unlike Astra, it has struggled to make up for these losses with new, high-performing products.
Chief executive Emma Walmsley has worked hard to replenish the drug portfolio, but it is proving a struggle. To fund GSK’s R&D efforts, she froze the dividend at 80p a share for years. In 2022, it was cut to 44p, and the following year to 42p.
The spin-off of its consumer healthcare division as Haleon In 2022, GSK was supposed to focus more on pharmaceuticals and vaccines, but all it has done is encourage investors to focus on its weaknesses.
The fallen hero of the FTSE 100 dividend
However, brokers are optimistic. They have set a one-year average target price for the stock of 1,905.5 pence. If GSK hits that, it would mark a 24% increase from the current 1,535 pence.
The forecast yield of 3.61% is in line with the FTSE 100 average of 3.54%. While lower than the 5.5% some may remember, shareholder payouts are covered 2.6 times by earnings, offering scope for growth.
I haven't even mentioned the big cloud hanging over GSK: the ongoing litigation in the US over its blockbuster heartburn drug that is no longer being manufactured. ZantacShares fell nearly 10% on June 3 after a Delaware judge allowed more than 70,000 lawsuits alleging it caused cancer.
GSK is confident in its position. It notes that since 2019, 16 epidemiological studies have examined the possible link to cancer and found none. Last week, it announced confidential settlements in two lawsuits filed in California related to colorectal cancer. Many more remain.
I'm not buying any more GSK stock while this is still pending. I'm not selling it either, so all I can do is hold on in desperation. Even if GSK gets the right result, I'm not convinced that its stock is the best investment of my money today. But for now, I'm stuck with it.
