Should I buy this FTSE 100 stock?

A GlaxoSmithKline scientist uses a microscope

Despite having seen its share price rise nearly 10% from the beginning of the year, GlaxoSmithKline (LSE: GSK) has had a turbulent past 18 months. Although the FTSE 100 stock saw a rise in its share price after Elliott Management announced back in April that it had built a large stake in the pharmaceutical giant, over the past year the stock has underperformed compared to competitors. So, does this present an opportunity to get a hold of cheap shares?

GSK latest results

In its Q2 results, released at the end of July, GSK reported 6% growth in sales from Q2 2020. This was mainly due to vaccine sales, up 39% for the quarter. On top of this, the firm also offered a solid outlook for the period. For example, it had a positive phase III result for medical treatment for chronic kidney disease. CEO Emma Walmsley highlighted how the positive results from the latest quarter would provide momentum for the second half of the year and beyond. This is positive news for investors.

With that said, not all of the results provided as much reason for optimism. Total earnings per share (EPS) came in at 27.9p for Q2, 39% lower than EPS for Q2 2020 (45.5p). GSK also offered adjusted EPS for Q2 2021. This metric strips out non-recurring components, such as disposals. Adjusted EPS for Q2 came in at 28.1p, an improvement on the 19.2p for Q2 2020. Half-year sales were down 7%, while profits also took a slight hit. This mixed bag of results may reflect the inconsistency witnessed recently in the FTSE 100 stock’s share price.

Elliott Management

As an activist fund, Elliott has not simply bought its large stake in GSK to sit back and relax. Instead, it will be actively pursuing ways to increase the value of the company — and therefore, the share price. A factor like this is highly persuasive for me when considering whether to buy the shares or not. Not only is the presence of an activist fund enticing for me, but I also think GSK has the potential to thrive with the correct guidance. The stock has experienced a decline in its share price, yet the firm possesses strong qualities such as a strong brand and large workforce, which in the future could allow it to succeed.  

Another factor is the recent decision to split GSK into two divisions: a consumer healthcare business and a biopharma business. I think this will boost performance, allowing the respective businesses to streamline their operations.

So, should I buy?

Although the GSK share price has been far from exciting over the past 12 months, I think the business could see a bounce back in the future. The stock has a solid foundation, and if all goes to plan, the split, planned for 2022, should further boost growth. What worries me is its inconsistency and pretty poor long-term performance. The Elliott investment should provide a lift, but there are certainly no guarantees of this – and its long-term record proves this. For this reason, I’ll be avoiding GSK shares for the time being.

The post Should I buy this FTSE 100 stock? appeared first on The Motley Fool UK.

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Charlie Keough has no position in GlaxoSmithKline. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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