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Why has the GSK share price surged 12% in one month?

Can GSK deliver further share price growth?

The GSK (LON: GSK) share price has risen by around 12% in the past month. One reason for this could be the impact of the company’s quarterly results on investor sentiment. They showed continued progress on revenue growth and margins ahead of what is expected to be a significant 2022 for the firm, as it moves ahead with plans to split into two separate entities.

In the third quarter of the current year, GSK’s revenue increased by 10% at constant exchange rates. Sales were catalysed by strong performances from new and speciality medicines, which raised revenue by 24%, and vaccines, which generated a 13% rise in sales. This bodes well for the firm’s long-term prospects, since both of these areas are expected to form a major part of ‘New’ GSK’s future. In fact, the company believes they will ultimately produce around 75% of its total revenue by 2026.

The company’s improving sales figures were complemented by ongoing cost discipline that allowed adjusted earnings per share to rise by 3% year-on-year during the third quarter. This meant that the firm increased its guidance for the full year.

Looking ahead, GSK expects its ‘New’ business to deliver 5% annualised sales growth between 2021 and 2026. It also anticipates that adjusted operating profit will rise by 10% per annum over the same period. Alongside the long-term potential for its current consumer health arm, which will become a separate business in 2022, the future for the wider operations currently under the GSK ‘umbrella’ could be relatively upbeat.

Of course, there has been some shareholder dissatisfaction in recent months. There has also been uncertainty about the proposed separation of the company into two parts, as well as who will ultimately be present on their management teams.

However, with upbeat recent performance and a share price that could still offer good value for money despite its recent rise, GSK may produce sound performance compared to the FTSE 100 index. Indeed, its forward price-earnings ratio of around 16 means it may offer a wider margin of safety compared to other global healthcare companies at the present time.

Therefore, while recent share price growth may not be maintained in the short run due to an uncertain period for the business as it makes major changes to its structure, its long-term potential appears to be high.

Not Investment Advice Note: Views expressed are those of the writer. The author does not own any stocks mentioned. The article is information, not advice. Share prices can rise and fall. Past returns are not a guide to the future. Please do your own research.

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