Novavax coronavirus vaccine
The GSK share price has been in a strong recovery rally recently. GlaxoSmithKline shares are trading at 1,482p, which was about 25% above the lowest level since March this year.
In the past few months, GSK’s shareholders have complained about the relatively low returns in the company. For example, the stock has dropped by about 2% in the past 12 months. In the same period, the Vanguard Healthcare ETF has jumped by more than 28%. Companies like Pfizer and Johnson & Johnson have risen by more than 20%.
GSK is attempting to create value for its shareholders. One way it is aiming to achieve this is by separating its business into two. It is spinning off its consumer healthcare business into a separate company. Some analysts would like it to do more.
On the one hand, some argues that the firm should sell the consumer business. Others believe that the company should separate into three businesses. The main one will be a manufacturer and seller of pharmaceutical drugs while the other one will specialize in vaccines. The other firm will focus on consumer products.
At the same time, the stock’s performance has left GSK relatively undervalued compared to peer companies. And at a time when appetite of British companies is rising, there are signs that parts of the firm’s business can come into play. Because of its large market cap, it is relatively impossible for it to be acquired. The firm has a PE ratio of about 16x while its main peers like Pfizer and Novartis have a PE of more than 20%. So, is the GSK share price too cheap to ignore?
The daily chart shows that the GSK stock price has made some modest recovery as investors wait for the consumer business spin-off. The shares have faced some resistance after it rose to the 50% Fibonacci retracement level. It has also formed an ascending channel that is shown in red. Additionally, the stock bullish trend is being supported by the 25-day and 50-day moving averages.
Therefore, at this point, the path of the least resistance for the stock is to the upside. The next key resistance level to watch is the 61.8% Fibonacci retracement level at 1,600p. This view will be invalidated if the stock moves below 1,440p.