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GSK Stock: A Value Trap or a Hidden Gem?


  • GSK (GSK), formerly known as GlaxoSmithKline, is facing a complicated future.
  • The pharmaceutical leader is struggling against multiple macroeconomic headwinds.
  • But GSK stock has the kind of long-term potential investors shouldn’t ignore.
A GlaxoSmithKline (GSK) office in London.
Source: Willy Barton / Shutterstock.com

It’s a complicated time for GSK (NYSE:GSK), formerly known as GlaxoSmithKline. Shares of the U.K. pharmaceutical company have been volatile over the past month but have managed to stay in the green despite significant macroeconomic headwinds. Still, GSK stock is struggling this week amid an onslaught of headlines.

Recently, GSK sounded the alarm about the European Union’s (EU) plans for overhauling laws governing its pharmaceutical sector. Additionally, the company reported earnings for Q1 2023, revealing a drop in sales and waning demand for its Covid-19 treatment. Right now, GSK is headed into the new quarter under a cloud of uncertainty as investors ponder its growth prospects.

Does this mean the pharmaceutical leader can’t usher in a turnaround in the coming months? Let’s take a closer look at the factors forcing GSK stock down.

What’s Happening With GSK Stock?

Following the recent GSK earnings report, it’s understandable that investors may be conflicted about the company. The firm beat expectations for both earnings and revenue, which would normally be enough to help a stock rise. But GSK stock has been declining for the past two days, indicating that the market is more concerned with the company’s declining sales.

The problem seems to be Xevudy, GSK’s Covid-19 treatment drug. Financial Times reports that U.S. regulators have deemed the treatment “unable to tackle the most prevalent variants of the virus.”

On top of that, GSK is facing legislation that could threaten its entire sector in the EU. According to Reuters, this represents the largest medical law overhaul in two decades. While the European Commission claims this will address unequal access to medicine across the continent, pharma leaders like GSK CEO Emma Walmsley have raised concerns, noting that the changes may compel companies to invest elsewhere. While this wouldn’t necessarily pose negative consequences for GSK stock in the long term, it could still lead to turbulence and uncertainty in the near future.

All this isn’t to say that GSK has no growth prospects, though. InvestorPlace contributor Larry Ramer is optimistic about its cancer treatment Jemperli, for example:

“By only presenting data on rectal cancer patients that receive Jemperli, without comparing their progress to patients that receive a placebo, GSK will be able to obtain FDA approval for the drug’s use as a treatment for the disease more quickly and more cheaply. Also noteworthy is that the agency has given Jemprli ‘fast track designation’ in the rectal cancer indication, showing that the FDA is very optimistic about the drug and making it easier for the treatment to be approved much more quickly.”

Ramer adds that, while he sees the drug having major potential across the globe, that will likely only happen over the long term.

Value Trap or Hidden Gem?

There’s an argument to be made for both characterizations of GSK stock. However, the EU legislation isn’t necessarily a long-term negative catalyst. In fact, it could ultimately benefit the company.

For that reason, GSK feels more like a hidden gem, even as it faces a difficult industry landscape. Investors should also note that the company is acquiring Bellus Health (NASDAQ:BLU), which could help shares rise in the long term.

On the date of publication, Samuel O’Brient did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Samuel O’Brient has been covering financial markets and analyzing economic policy for three-plus years. His areas of expertise involve electric vehicle (EV) stocks, green energy and NFTs. O’Brient loves helping everyone understand the complexities of economics. He is ranked in the top 15% of stock pickers on TipRanks.

Article printed from InvestorPlace Media, https://investorplace.com/2023/04/gsk-stock-a-value-trap-or-a-hidden-gem/.

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