I GSK (LSE: GSK) share price is a nightmare and there is little sign of respite for impatient investors.
Shares in FTSE 100 the pharmaceutical giant is now trading 10.18% lower than five years ago. The woes continue, with the stock down 5.97% last week. As a benchmark, it's up just 1.47% over the past 12 months.
I thought the stock looked overvalued when I bought it earlier this year, but like many before me, I've had a reality check. So what's going on?
Why do stocks fall and fall?
I remember the glory days when, like GlaxoSmithKline, this was widely viewed as buy-and-hold income and growth stocks.
One FTSE 100 pharma stock has delivered its long-term strength. Unfortunately, it's not GSK, but a competitor AstraZeneca.
I'm not sure Astra sees GSK as a competitor these days. Astra is now the UK's largest company with a market capitalization north of £180bn. GSK is worth a third of that at £60bn.
Like all pharmaceutical companies, GSK has seen patents expire on a string of blockbuster drugs, allowing generic competitors to eat into revenue. Unlike Astra, it has struggled to make up for these losses with new, high-margin products.
Chief executive Emma Walmsley has worked hard to replenish the drug pipeline, but it's proving a struggle. To fund GSK's R&D efforts he set dividends at 80p per share in yonks. In 2022, it was reduced to 44p and then to 42p the following year.
Completing the consumer healthcare segment as Haleon 2022 should have sharpened GSK's focus on pharmaceuticals and vaccines. All it does is encourage investors to focus on its weaknesses instead.
Fallen FTSE 100 dividend hero
Consumers are optimistic though. They have set a one-year share price target of 1,905.5p. If GSK achieves that, it will mark a 24% rise from today's 1,535p.
The weather yield of 3.61% is in line with the FTSE 100 average of 3.54%. While that's down from the 5.5% some will remember, shareholder payouts cover 2.6 times earnings, giving room for growth.
I haven't mentioned the biggest cloud hanging over GSK: the ongoing US lawsuits over its aborted heartburn blockbuster drug Zantac. Shares fell nearly 10% on June 3 after a Delaware judge upheld more than 70,000 lawsuits alleging it caused cancer.
GSK is confident in its case. It notes that as of 2019, 16 epidemiological studies have examined a possible link to cancer and found none. Last week, it announced a private settlement in two lawsuits filed in California involving colorectal cancer. A lot remains.
There is no way I am buying more GSK shares while this is hanging in the stock. I won't sell either, so all I can do is stay depressed. Even if GSK gets the right result, I'm not sure its shares are the best use of my money today. But for now, I'm sticking with them.
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