Over the past five years, the GlaxoSmithKline (LSE: GSK) share price has hardly budged. Excluding dividends, the stock has returned -4.3% since the beginning of 2014, underperforming the FTSE 100, which returned 19.8% over the same time frame.
However, when you include dividends, the picture is significantly different. Including distributions to investors over the half-decade, the GlaxoSmithKline share price has underperformed by 2.7% per annum. Over the past decade, the stock has produced a total return of 8.5% compared to 11.4% for the FTSE 100, index including dividends.
Based on this performance, its difficult to tell what the future holds for the GlaxoSmithKline share price. The fact that the stock has gone nowhere over the past five years doesnt give me any confidence it will be any different over the next five.
That being said, past performance rarely dictates future returns. Just because the companys shares have underperformed is in the past, doesnt mean they will continue to do so. With this in mind, Im going to try and determine what the future holds for the stock.
What does the future hold?
To figure out whether or not the GlaxoSmithKline share price is an attractive investment, its vital to consider why its underperformed in the past, and what its future holds.
Considering the groups earnings performance over the past six years, I dont think its unreasonable to say that the business has gone backwards since 2013. Indeed for 2018, the company reported a net profit of 3.6bn, down around a third in five years. This seems to explain why the GlaxoSmithKline share price has underperformed the FTSE 100 over the past five years.
But now it looks as if this trend is coming to an end. Looking at City projections, it seems as if analysts are expecting the group to report earnings growth of 24% in 2019, followed by 5.2% in 2020. If the company manages to meet these targets, it would be a vast improvement for the business. Over the past five years, earnings per share have only fallen. Analysts are expecting the firm to report a net profit of 5.6bn for 2019, which will be a six-year high if it does.
If managements efforts to turn the business around yield concrete results this year, then I think there could be a re-rating of the shares. At the time of writing, shares in the pharmaceutical group are changing hands as a forward P/E of just 13.5, thats below the global pharmaceutical industry average of 18.
To put it another way, the GlaxoSmithKline share price seems to be undervalued by approximately 30% compared to its international peers.
The bottom line
Considering this valuation gap, and after factoring in the Citys growth projections for 2019, I think it could be worth buying the GlaxoSmithKline share price right now.
If the company does manage to return to growth over the next 12 months, I think the stock deserves to trade at a much higher valuation. Investors buying today can also pocket a 5.3% dividend yield while they wait for the recovery to take shape.
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