If You Had Bought GlaxoSmithKline Pharmaceuticals (NSE:GLAXO) Stock A Year Ago, You Could Pocket A 30% Gain Today

Passive investing in index funds can generate returns that roughly match the overall market. But if you pick the right individual stocks, you could make more than that. To wit, the GlaxoSmithKline Pharmaceuticals Limited (NSE:GLAXO) share price is 30% higher than it was a year ago, much better than the market return of around 7.8% (not including dividends) in the same period. So that should have shareholders smiling. And shareholders have also done well over the long term, with an increase of 30% in the last three years.

See our latest analysis for GlaxoSmithKline Pharmaceuticals

While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One flawed but reasonable way to assess how sentiment around a company has changed is to compare the earnings per share (EPS) with the share price.

During the last year, GlaxoSmithKline Pharmaceuticals actually saw its earnings per share drop 81%.

Given the share price gain, we doubt the market is measuring progress with EPS. Since the change in EPS doesn't seem to correlate with the change in share price, it's worth taking a look at other metrics.

We are skeptical of the suggestion that the 1.3% dividend yield would entice buyers to the stock. GlaxoSmithKline Pharmaceuticals' revenue actually dropped 3.0% over last year. So the fundamental metrics don't provide an obvious explanation for the share price gain.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

If you are thinking of buying or selling GlaxoSmithKline Pharmaceuticals stock, you should check out this FREE detailed report on its balance sheet.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of GlaxoSmithKline Pharmaceuticals, it has a TSR of 34% for the last year. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

It's good to see that GlaxoSmithKline Pharmaceuticals has rewarded shareholders with a total shareholder return of 34% in the last twelve months. And that does include the dividend. That gain is better than the annual TSR over five years, which is 0.4%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that GlaxoSmithKline Pharmaceuticals is showing 3 warning signs in our investment analysis , you should know about...

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on IN exchanges.

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