The GSK (LSE: GSK) share price has really struggled over the past year. Shares in the pharmaceutical company have fallen by 18%, excluding dividends.
Over the same time frame, the FTSE 100 has returned around 16%, excluding dividends.
To put it another way, shares in GlaxoSmithKline have underperformed the market by 34%, excluding dividends over the past 12 months.
Why has the stock performed so poorly, and should I take advantage of this underperformance and acquire some shares in the pharmaceutical giant for my portfolio?
GSK share price doubts
It would appear that the market has been giving Glaxo the cold shoulder because of doubts about the company’s growth potential.
While the business has a strong portfolio of treatments already on the market, analysts are expressing concern that the firm is not investing enough for the future. Its product pipeline, they argue, is thin compared to other companies such as AstraZeneca.
I think this is a credible argument. If the company is not investing enough for the future, profits are unlikely to grow. That means the GSK share price could continue to tread water.
Another headwind has been the coronavirus pandemic. During the first quarter, revenues fell 18% as patients delayed their shingles vaccinations (as well as other routine treatments).
This trend is likely to persist for the next few quarters. Unlike Astra, the company has struggled to develop its own coronavirus vaccine. This means it has to sit on the sidelines while its London-listed peer helps vaccinate the world.
Growth initiatives
The company is making progress in some areas. For example, it plans to launch a new HIV drug, a new long-acting treatment for severe asthma and there is the demerger of the £30bn Advil to Sensodyne consumer healthcare division. This is planned for the middle of 2022.
Analysts have long argued that Glaxo’s consumer healthcare business could be worth more as an independent operation. But unfortunately at this stage, it seems as if the market remains ambivalent about the potential demerger.
Overall, I think the company’s outlook is uninspiring. However, I believe the involvement of US hedge fund Elliott Management, which recently acquired a significant stake in the business, could be a catalyst for change.
Elliot has a reputation for being aggressive and forcing the companies in which it owns stakes to change. The hedge fund’s very involvement has already been a positive catalyst for the GSK share price. The stock has jumped around 5% since the position was revealed.
The bottom line
Considering all of the above, I think the outlook for the GSK share price remains mixed.
The way I see it, the stock’s most appealing quality today is its dividend yield. The shares offer a yield of 5.9%, but it is not guaranteed.
Management may have to cut the payout after the demerger or reduce shareholder distributions to free up more cash for research and development.
As such, I would not buy the stock today. I think the company’s dividend yield is on shaky ground, its growth outlook is uninspiring, and there’s no telling how the business will react to Elliott.
I’d rather buy other income stocks with better growth prospects for my portfolio.