Investor sentiment towards the GlaxoSmithKline (LSE: GSK) share price has steadily deteriorated since the beginning of 2020. The shares, which were changing hands for over 1,800p at the beginning of 2020, are worth less than 1,400p today.
This performance suggests the company has had a rough time of it this year. But that’s just not the case. In fact, Glaxo’s underlying fundamental performance has been significantly more robust than many other FTSE 100 businesses.
Sales under pressure
According to its most recent trading update, Glaxo’s sales fell 5% during the third quarter of 2020. However, operating profit increased by 2%. This reflected a significant decline in operating expenses.
The group’s sales have come under pressure this year due to a decline in vaccine sales. These fell 9% year-on-year in the third quarter due to coronavirus disruption. Visits to vaccination centres declined, and some have closed.
I think this has to be a temporary headwind. Conditions such as shingles haven’t gone away. Patients are only putting off treatments. When the pandemic has subsided, these clients will return, possibly in greater numbers.
The same can be said for Glaxo’s pharmaceutical business in general. Sales declined 3% overall in the quarter. The pandemic was also partly to blame. Once again, I think this decline in demand is only likely to be temporary.
This is why I’m considering adding the GlaxoSmithKline share price to my portfolio after recent declines. Yes, sales have ticked lower this year but, as I said, I reckon the fall is only likely to be a temporary factor.
At the same time, the firm is investing in new products. This year, Glaxo’s research and development team have progressed several HIV treatments and vaccines. In the last quarter alone, the group received three major regulatory approvals, including asthma and multiple myeloma treatments.
GlaxoSmithKline share price bargain
Considering all of the above, I’m optimistic about the long-term outlook for the pharmaceutical group. That’s why I’m planning to use the recent decline to snap up a share of this world-leading business.
Granted, it could be a year or two before the business returns to growth. To some extent, Glaxo’s near-term outlook is tied to the pandemic. The sooner it is over, the sooner vaccination programmes will be able to restart.
Still, while the company may continue to see disruption in the near term, investors will be paid to wait for its recovery. The GlaxoSmithKline share price currently offers a dividend yield of just under 6%. I think that looks particularly attractive in the current interest rate environment.
Moreover, shares in the pharmaceutical giant are changing hands at a forward price-to-earnings (P/E) ratio of just 11.6. When looking for cheap stocks, I like to compare the company’s current valuation to its historical average. In this case, the comparison seems favourable. The GlaxoSmithKline share price is trading at a discount to its 10-year P/E ratio of 13.6.
When considering the company’s long-term growth potential, I think this discount is unwarranted.