Driven By Speculators?
Jordo is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
At this point in time, I believe GlaxoSmithKline (NYSE: GSK) is more of a speculative investment. In this article, I will explain why investors should wait for dips for optimum entry points, while shareholders should hold for an extended period and watch each earnings report closely. Competition is increasing in the industry while there are a number of macroeconomic dynamics that are creating headwinds for GlaxoSmithKline. There are a number of positive and negative developing situations as of late that will have a myriad of influences on GlaxoSmithKline's stock price throughout the remainder of the year. GlaxoSmithKline is not a poor investment; however there are more promising assets in the big cap pharmaceutical industry to add to a portfolio.
Sales growth for GlaxoSmithKline has increased by over 1.5 percent from the previous year, sales growth has decreased by almost 2.5 percent from the previous quarter. The current price is more than 11 times earnings; this is an improvement from the trailing 12 months price that was more than 12 times earnings. GlaxoSmithKline's beta is around .5 while the PEG ratio is around 1.5. Return on equity, operating margin and net margin all spiked at the end of 2011 and declined, but still are at a significant improvement from the third quarter of 2011. The current ratio is above one while its quick ratio is slightly below one. GlaxoSmithKline's debt to equity ratio has decreased significantly over the past three quarters. The current dividend yield is almost five percent, this currently equates to a $2.28 annual rate. These numbers are representative of GlaxoSmithKline's attempt to tighten up its financials and operations in order to adapt to the evolving headwinds.
GlaxoSmithKline's growth rates for this year, the next year and the next five years all exceed the industry average. Its trailing price to earnings ratio is only slightly above the industry average. GlaxoSmithKline's divided yield and trailing net profit margin are around one percent above the industry average. Its return on equity is nearly three times the industry average. The level of success in GlaxoSmithKline's short-term and long-term projected outlook depends largely on its ability to compete with the top-tier brands in the industry, in turn launching significant products from its pipeline in an effective manner.
GlaxoSmithKline is currently hoping for success with the horizontal expansion of Horizant and the impending approval to treat postherpetic neuralgia. GlaxoSmithKline also hopes to compete along with the number of increasing big pharmaceutical caps attempting to enter the breast cancer market. Roche utilized technology from ImmunoGen (IMGN) in order to launch a new breast cancer drug. This new drug is less toxic and delays the progression of breast cancer by three more months than GlaxoSmithKline's Tykerb. Roche expects approval of the new drug in the US and Europe by the end of the year. Eli Lilly (LLY) and Onyx Pharmaceuticals (ONXX) are also expected to enter the breast cancer market eventually.
GlaxoSmithKline is currently interested in acquiring Amylin Pharmaceuticals (AMLN) and Human Genome Sciences (NASDAQ: HGSI). GlaxoSmithKline has been attempting a hostile takeover of HGS for some time. Human Genome Sciences has been resisting this acquisition, while GlaxoSmithKline claims it will help maintain the quality and long-term growth of the partnership and products they have developed together. Human Genome Sciences claims the hostile bids are an attempt to undervalue the company. Investors and shareholders should not expect this acquisition to come to fruition at any time soon or at all necessarily.
GlaxoSmithKline is also facing an increasing amount of competition in the India market. Abbott Laboratories (NYSE: ABT) currently has its sights set on India and other lucrative emerging markets as well. In early May, Abbott established a nutrition R&D center in Bangalore, India. The nutrition market in India is valued at $1 billion dollars, and Abbott is not loosening its grip on global growth. Losing market share in India could hamper price increases in GlaxoSmithKline's stock price for the mid to long-term. GlaxoSmithKline recently chose GenSight's Enterprise portfolio application to help support the development and release of new products in its current pipeline. GlaxoSmithKline is embracing GenSight's technology to help increase efficiency and portfolio management in order to capitalize on opportunities in the near and long-term future. GenSight's technology integrates well with GlaxoSmithKline's current system and will help R&D effectively deploy products with the most opportunity for success. GenSight can help GlaxoSmithKline optimize the allocation of resources in order to streamline and automate its current pipeline operations.
GlaxoSmithKline recently received approval for Menhibrix from the FDA in June of 2012. This new products will help reduce the number of shots infants and toddlers will need for immunization treatment. This vaccine will make things easier for toddlers, families and practitioners as well. The new product is approved for children from six weeks to 18 months years old. Menhibrix was developed under the guidance of the optimum immunization schedule recommendations of the CDC.
A multiyear partnership between GlaxoSmithKline and Liquidia Technologies was also recently announced. Particle Replication In Non-Wetting Templates (PRINT) technology will be utilized in order to develop vaccines and inhaled products. Combining Liquidia Technologies' PRINT capabilities with GlaxoSmithKline's vaccine and inhaled product enterprises can create several promising opportunities for both organizations. Scientists from both companies will be working closely together in R&D to develop and discover a strong portfolio of life saving therapies.
In the earnings call for Q1 of 2012, GlaxoSmithKline management emphasized the focus for enhancing returns to shareholders, progressing R&D opportunities and improving operations and cash leverage. GlaxoSmithKline has experienced headwinds in Europe and the Middle East but continues to pursue growth in the US, Japan and emerging markets as well. Improving margins and developing more prospects in the GlaxoSmithKline pipeline continue to be the primary objectives in order to sustain short-term and long-term growth both domestically and internationally. Potential acquisitions aside, consistent efforts to develop products from the GlaxoSmithKline pipeline that reach FDA approval should provide a steady increase in stock price regardless of the typical ebbs and flows derived from competition in the industry.
jordobivona has no positions in the stocks mentioned above. The Motley Fool owns shares of Abbott Laboratories and GlaxoSmithKline. Motley Fool newsletter services recommend GlaxoSmithKline. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.