GSK Stock Soars 12% After $350B Investment Pledge Raises Fresh Valuation Questions

Thinking about what to do with GSK stock right now? You are not alone. The past few months have been anything but quiet for this pharma giant, and the stock’s recent performance has caught the eye of investors looking for both growth and value. Over just the last week, GSK shares jumped an impressive 12.0%, with the 30-day return at 14.2% and the one-year return hitting 18.0%. Step back even further, and the three-year total comes out to 40.7%, while the five-year return stands at 43.5%. Such numbers speak to renewal, changing sentiment, or maybe both. There are real reasons behind that momentum.

Some of the excitement traces back to major news in the broader sector. Drugmakers, including GSK, recently pledged over $350 billion in U.S. investments, a signal of commitment that goes well beyond routine operations. At the same time, policy shifts like the next round of Medicare drug pricing negotiations have grabbed headlines. Whenever the biggest players make such moves, it changes the way investors think about future risks and opportunities, often for the better.

But what about value? By classic measures, GSK currently earns a value score of 4 out of 6, meaning it looks undervalued in four key checks. That is a rare feat among large-cap names, and it matters as much as all the recent buzz does. In the next section, we will dig into the details of how this value score is calculated, comparing different methods to see where GSK really stands. And stick around. Towards the end, we will touch on a smarter way to think about valuation that goes beyond the standard metrics.

GSK delivered 18.0% returns over the last year. See how this stacks up to the rest of the Pharmaceuticals industry.

Approach 1: GSK Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future cash flows and then discounting those cash flows back to today's value. It is a way to figure out what a business is worth based on the money it is expected to generate in the years ahead.

For GSK, the current Free Cash Flow (FCF) stands at £5.25 billion. Analysts predict steady growth over the coming years, with Simply Wall St extrapolating that GSK’s FCF could reach £9.99 billion by 2035. The next five years rely on analyst consensus. Projections beyond that are based on moderate growth assumptions. All cash flow figures are in pounds.

Given these cash flow expectations, the DCF analysis produces an intrinsic fair value for GSK stock of £46.93 per share. Compared to the recent share price, this implies a significant discount of 64.9%, suggesting the stock is deeply undervalued based solely on projected future cash generation.

Result: UNDERVALUED

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for GSK.

Our Discounted Cash Flow (DCF) analysis suggests GSK is undervalued by 64.9%. Track this in your watchlist or portfolio, or discover more undervalued stocks.

Approach 2: GSK Price vs Earnings

The Price-to-Earnings (PE) ratio is often the preferred way to value profitable companies like GSK, since it directly measures how much investors are willing to pay today for each pound of the company’s earnings. A PE ratio gives a snapshot of market sentiment toward a company’s growth potential and its risk profile, making it especially useful when a company has consistent earnings.

The “right” or “fair” PE ratio to assign a company depends on how quickly its earnings are expected to grow and how much risk is associated with those results. Fast-growing companies or those with relatively stable earnings often trade at higher PE ratios, while slower growth or higher-risk companies see lower ratios. It is always important to compare a stock’s PE not just against its industry, but also against similar companies and the unique strengths and risks it faces.

Currently, GSK trades at a PE ratio of 19.4x. For context, the global pharmaceuticals industry sits higher at 24.6x, while the average among similar-sized peers is about 17.8x. What matters more, though, is GSK’s “Fair Ratio,” a proprietary Simply Wall St metric combining factors like GSK’s earnings growth, industry conditions, profit margins, market size, and risk profile. This advanced metric estimates a tailored PE ratio of 28.0x, suggesting investors could reasonably pay a premium for GSK relative to peers or the sector average. The Fair Ratio provides a more complete picture than a simple industry or peer comparison, since it weighs GSK’s strengths, competitive position, and future prospects. With the stock trading at 19.4x, noticeably below the Fair Ratio, GSK looks undervalued on this basis.

Result: UNDERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your GSK Narrative

Earlier we mentioned that there is an even better way to understand valuation. Let us introduce you to Narratives. A Narrative is an easy, story-driven approach available on Simply Wall St's Community page that allows investors to connect their view of a company's future with real, data-backed financial forecasts and an estimated fair value.

Instead of just relying on ratios or price targets, Narratives let you shape the outlook based on your own assumptions for GSK’s future revenue, earnings, and profit margins, tying the “why” behind the numbers with your expectations. Narratives dynamically update as new news, earnings, or regulatory developments break, so your estimates and fair value always stay current.

By comparing your Narrative fair value with the current share price, you can confidently decide when GSK is undervalued and whether it is time to act. For example, one Narrative sees GSK’s fair value as high as £78.00, while another takes a more cautious view and estimates £11.20. This demonstrates how different perspectives can lead to different investment decisions. Narratives put you in the driver’s seat, making your decisions smarter, more transparent, and focused on what matters most to you.

Do you think there's more to the story for GSK? Create your own Narrative to let the Community know!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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