Are Investors Undervaluing GlaxoSmithKline (GSK) Right Now?
Here at Zacks, we focus on our proven ranking system, which places an emphasis on earnings estimates and estimate revisions, to find winning stocks. But we also understand that investors develop their own strategies, so we are constantly looking at the latest trends in value, growth, and momentum to find strong companies for our readers.
Of these, value investing is easily one of the most popular ways to find great stocks in any market environment. Value investors use fundamental analysis and traditional valuation metrics to find stocks that they believe are being undervalued by the market at large.
Zacks has developed the innovative Style Scores system to highlight stocks with specific traits. For example, value investors will be interested in stocks with great grades in the "Value" category. When paired with a high Zacks Rank, "A" grades in the Value category are among the strongest value stocks on the market today.
One stock to keep an eye on is GlaxoSmithKline (GSK). GSK is currently sporting a Zacks Rank of #2 (Buy), as well as a Value grade of A. The stock is trading with a P/E ratio of 13.51, which compares to its industry's average of 14.37. Over the past 52 weeks, GSK's Forward P/E has been as high as 14.65 and as low as 12.29, with a median of 13.59.
Value investors also use the P/S ratio. The P/S ratio is is calculated as price divided by sales. This is a popular metric because sales are harder to manipulate on an income statement, so they are often considered a better performance indicator. GSK has a P/S ratio of 2.46. This compares to its industry's average P/S of 3.52.
Finally, we should also recognize that GSK has a P/CF ratio of 13.56. This data point considers a firm's operating cash flow and is frequently used to find companies that are undervalued when considering their solid cash outlook. This stock's P/CF looks attractive against its industry's average P/CF of 14.92. GSK's P/CF has been as high as 25.46 and as low as 12.87, with a median of 22.68, all within the past year.
Value investors will likely look at more than just these metrics, but the above data helps show that GlaxoSmithKline is likely undervalued currently. And when considering the strength of its earnings outlook, GSK sticks out at as one of the market's strongest value stocks.
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