At the start of 2010, shares of GlaxoSmithKline (LSE: GSK) (NYSE: GSK.US) began a steady upward movement and peaked in the region of 1,782.00p a share by mid-2013. However, since then, things have changed and shares of Glaxo have been on a steady downward trend. For the one reason discussed here, this presents an opportunity for investors to take some position in Glaxo for a bargain.
The downward trend can be effectively traced to the fact that company’s financial results have not been impressive in recent times. For instance, for the first nine month of the year, the company saw its US and Europe turnover drop by 9% and 7% at constant exchange rate respectively. The Chinese bribery scandal isn’t helping, either. However, I deem Glaxo undervalued. Here’s why.
Growing presence in emerging markets
While turnover from US and Europe decreased during the third quarter, Glaxo experienced a strong growth of 12% in emerging markets. Well, that didn’t just start this year. It’s been like that over the last few years. As of 2008, Emerging Markets and Asia-Pacific accounted for 16% of the company’s total turnover. However, by the end of 2013, this figure had grown to 25%.
You will appreciate this when you consider that between 2008 and 2013 its total turnover have increased by £2.1 billion. It shows that the increase didn’t come as a result of stagnant turnover. Moreover, the fact that Glaxo has topped the Access To Medicine Index for the fourth time this year confirms Glaxo’s presence in the emerging markets.
More growth on the horizon
Going into the future, Glaxo looks best positioned to be the winner in the emerging markets. First, according the International Monetary Fund, emerging economies are expected to grow two to three times more than developed countries. And if you were familiar with the factors that facilitate the growth of a company, you’d know that economic growth is one of them. With this in mind, as the emerging economies develop, a company like Glaxo with strong presence in these markets would see impressive growth.
Moreover, The Economist intelligence Unit projects that drug sales in China will reach $166 billion in 2017. At the minimum, Glaxo’s focus on emerging markets would position it to take a good portion of that projection. Indeed, it seems that’s already happening considering that the company experienced a 65% increase in sale in China during the third quarter.
One other positive about Glaxo is that it trades on a low P/E relative to close competitor AstraZeneca. Glaxo currently has a P/E of about 13 while AstraZeneca currently has a P/E of around 36.55, both based on 2013 results. So, at current levels, Glaxo presents value.