Did GlaxoSmithKline plc’s (LON:GSK) Recent Earnings Growth Beat The Trend?
In this article, I will take a look at GlaxoSmithKline plc’s (LSE:GSK) most recent earnings update (31 December 2017) and compare these latest figures against its performance over the past few years, along with how the rest of GSK’s industry performed. As a long-term investor, I find it useful to analyze the company’s trend over time in order to estimate whether or not the company is able to meet its goals, and eventually grow sustainably over time. View our latest analysis for GlaxoSmithKline
How Did GSK’s Recent Performance Stack Up Against Its Past?
For the purpose of this commentary, I like to use the ‘latest twelve-month’ data, which annualizes the most recent half-year data, or in some cases, the latest annual report is already the most recent financial year data. This method enables me to analyze different stocks on a similar basis, using the most relevant data points. For GlaxoSmithKline, its most recent bottom-line (trailing twelve month) is UK£1.53B, which, against the prior year’s figure, has climbed up by a significant 67.98%. Since these figures are relatively myopic, I’ve estimated an annualized five-year value for GSK’s earnings, which stands at UK£4.10B This suggests that, though earnings growth from last year was positive, over the past couple of years, GlaxoSmithKline’s earnings have been declining on average.
Why is this? Well, let’s look at what’s occurring with margins and if the whole industry is experiencing the hit as well. Revenue growth in the past couple of years, has been positive, however earnings growth has been falling. This means GlaxoSmithKline has been increasing expenses, which is hurting margins and earnings, and is not a sustainable practice. Looking at growth from a sector-level, the UK pharmaceuticals industry has been growing its average earnings by double-digit 43.79% over the prior twelve months, and 11.20% over the previous five years. This means that whatever uplift the industry is profiting from, GlaxoSmithKline is able to leverage this to its advantage.
What does this mean?
Though GlaxoSmithKline’s past data is helpful, it is only one aspect of my investment thesis. Recent positive growth doesn’t necessarily mean it’s onwards and upwards for the company. There may be variables that are impacting the entire industry thus the high industry growth rate over the same time period. I recommend you continue to research GlaxoSmithKline to get a more holistic view of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for GSK’s future growth? Take a look at our free research report of analyst consensus for GSK’s outlook.
2. Financial Health: Is GSK’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 31 December 2017. This may not be consistent with full year annual report figures.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
