Its been a very tough year for investors in GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US). Shares in the pharmaceutical company have fallen by 10% over the last year and have shown little sign of improving their performance in recent weeks.
However, the future could be much brighter for investors in the company. Indeed, GlaxoSmithKline could help you retire rich. Heres how.
Income Prospects
With shares in GlaxoSmithKline currently yielding 5.8%, it is clear that they are a hugely attractive income play. However, they have the potential to deliver much higher levels of income over the long run. For example, GlaxoSmithKline is expected to increase dividends per share by 3.8% next year and, with an improving pipeline, this growth rate could increase at a brisk pace.
Pipeline Potential
On the subject of GlaxoSmithKlines pipeline, investor attention has been drawn away from it in recent months as bribery allegations have taken centre stage. However, it remains hugely diverse and comes with a large amount of potential that could provide a boost to the companys bottom line. This is even more so since the company became a pure play pharmaceutical following the sale of its consumer brands, which should allow it to add even more value via its pipeline moving forward.
Valuation
On the face of it, GlaxoSmithKlines valuation doesnt look all that appealing. For example, it has a price to earnings (P/E) ratio of 14.8, which is higher than the FTSE 100s P/E ratio of 13. However, for a major pharmaceutical stock with a great pipeline, this seems cheap. After all, sector peer, Shire, was trading at over 20 times earnings when US rivalAbbVieapproached it with a takeover offer. Therefore, there still seems to be considerable potential for GlaxoSmithKlines rating to move upwards over the medium to long term.
Looking Ahead
Certainly, bribery allegations have not helped to lift market sentiment and, even though GlaxoSmithKline has now been fined 300 million by Chinese authorities, many investors are still wary of taking a position in the company due to ongoing allegations elsewhere. So, while sentiment could remain weak in the short term, GlaxoSmithKline seems to have a bright long-term future, which is based around its pipeline potential. As a result, it could boost your bottom line and help you to retire rich.
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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.
