Will GlaxoSmithKline Continue To Explode?

With shares of GlaxoSmithKline (NYSE:GSK) trading around $51, is GSK an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

GlaxoSmithKline is global healthcare group, which is engaged in the creation and discovery, development, manufacture and marketing of pharmaceutical products, including vaccines, over-the-counter medicines and health-related consumer products. GlaxoSmithKline’s principal pharmaceutical products include medicines in these therapeutic areas: respiratory, anti-virals, central nervous system, cardiovascular and urogenital, metabolic, antibacterials, oncology and emesis, dermatology, rare diseases, immuno-inflammation, vaccines and HIV. The company operates in three primary areas of business: Pharmaceuticals, Vaccines and Consumer Healthcare. Through its areas of business, GlaxoSmithKline is able to positively affect the lives of many consumers around the world that require their medications.

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T = Technicals on the Stock Chart are Strong

GlaxoSmithKline stock has seen a consistent downtrend since reaching highs in early 1999. Currently, the stock looks to be gaining some traction and may be headed towards $60 per share. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, GlaxoSmithKline is trading above its rising key averages which signal neutral to bullish price action in the near-term.

GSK

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of GlaxoSmithKline options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

GlaxoSmithKline Options

12.58%

76%

74%

What does this mean? This means that investors or traders are buying a very significant amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

May Options

Flat

Average

June Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very significant amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion…

E = Earnings Are Decreasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on GlaxoSmithKline’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for GlaxoSmithKline look like and more importantly, how did the markets like these numbers?

2012 Q4

2012 Q3

2012 Q2

2012 Q1

Earnings Growth (Y-O-Y)

-26.92%

-15.12%

12.86%

-10.53%

Revenue Growth (Y-O-Y)

-1.91%

-6.99%

-6.76%

1.71%

Earnings Reaction

0.73%

-0.99%

-1.21%

-3.63%

GlaxoSmithKline has seen mostly decreasing earnings and revenue figures over the last four quarters. From these figures, the markets have not been satisfied with GlaxoSmithKline’s recent earnings announcements.

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P = Average Relative Performance Versus Peers and Sector

How has GlaxoSmithKline stock done relative to its peers, Merck (NYSE:MRK), Novartis (NYSE:NVS), Pfizer (NYSE:PFE), and sector?

GlaxoSmithKline

Merck

Novartis

Pfizer

Sector

Year-to-Date Return

17.76%

18.27%

15.97%

23.45%

17.44%

GlaxoSmithKline has been an average relative performer, year-to-date.

Conclusion

GlaxoSmithKline provides essential pharmaceutical products to consumers in need offering a range of treatments worldwide. The stock has not done very well as it has been a part of a downtrend for the last several years. Currently, GlaxoSmithKline’s stock has seen a nice run, although, investors have not been very pleased with what they’ve heard during earnings announcements. Relative to its peers and sector, GlaxoSmithKline has been an average performer in a very strong sector. WAIT AND SEE what GlaxoSmithKline says during this coming earnings announcement.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.