He GSK (LSE:GSK) share price appears to have gained some momentum in the last six months, rising over 15%. Half of this growth occurred in 2024 alone.
Even after this share price rise, I think the stock looks pretty cheap. For this reason, I'm debating whether to add this UK pharma stock to my portfolio today.
Valuation and dividends
One of the main drivers of my interest in GSK stock is its low valuation. Currently trading with a price-to-earnings (P/E) ratio of less than 10, the stock looks cheap to me. For context, the FTSE 100 The average P/E ratio is usually around 14.
Looking at GSK's competitors, the stock appears to be an even better value. For example, Pfizer traders with a P/E multiple of 72 and AstraZeneca It trades on a P/E multiple of 35. More broadly, the pharmaceutical sector average is around 22. Looking at these numbers reinforces my thesis that the stock is severely undervalued.
In addition to the low valuation, GSK offers a healthy dividend yield of 3.5%. While this isn't the highest on Footise by any measure, it's still more than you could expect to earn on any savings account. What's more, dividend payments give me the ability to earn passive income for my portfolio, which I can reinvest to increase my returns.
Positive results
Yesterday, GSK released its fourth quarter and full-year 2023 results. Total sales increased 5% year-over-year and operating profit increased 12%. These are excellent indicators of positive business performance. Investors appeared to have reacted positively to the news, with shares soaring more than 3% after the market opened.
Looking ahead, chief executive Emma Walmsley said: “We expect to deliver another year of significant sales and profit growth in 2024.”. Specifically, the company expects sales growth of between 5% and 7%, with operating profits increasing by 7% to 10%.
Dividends are also expected to increase to 60 pence per share, which will help boost the yield so important for investors looking to generate passive income.
Rocky road ahead
One risk I do see for GSK is the high interest rate environment. The typical pharmaceutical industry model is to raise capital from outside investors to finance rounds of clinical trials of new drugs.
The problem is that when interest rates are higher, it is harder for funds to raise capital from investors. This could slow down the progress of drug development and ultimately translate into lower profits for companies like GSK.
Would you buy now?
I think GSK stock is very undervalued compared to the broader market. In addition to this, encouraging results and a positive outlook enhance the investment case. For these reasons, I would buy GSK stock if I had extra money today.