Are GSK Shares Getting Ready To Break Out?

GSK shares (LON:GSK) have been spending quite a lot of time around the 1500 – 1500p mark, with the last month of trading very much in a range. On a YTD basis, this level has found itself acting as support on a few occasions, so the curiosity surrounding where the stock goes next seems to be heating up.

Looking at the 6 month chart below, you could be forgiven for thinking that GSK is coiling up ready to break out after a period of consolidation, but technicals alone are not what is driving the stock. From a fundamental standpoint, recent earnings came in mixed, and need to be respected in the bigger picture.

The firm released its financial results for the second quarter of 2024, revealing a mixed performance amidst a volatile market environment. The pharmaceutical giant reported a revenue of £7.88 billion, marking a 9.8% increase from the same period in 2023, which surpassed analyst expectations by 5.2%. This revenue growth highlights the company's robust performance despite pervasive industry challenges.

However, the company's earnings per share (EPS) presented a grimmer picture, declining to £0.29 from the £0.40 reported in 2Q 2023, missing analyst estimates by a substantial 15%. The decreased EPS can be attributed to GSK's net income for the quarter falling 28% year-over-year, reaching £1.17 billion.

The pharmaceutical leader's profit margin has suffered, shrinking to 15% compared to 23% in the second quarter of the prior year. This decrease in profitability reflects the company's ongoing battles with increased costs, competitive pressures, and market headwinds.

Facing an uncertain economic outlook, GSK's forecast for revenue growth over the next three years is 4.5% per annum, which trails behind the 6.0% annual growth projected for the broader UK pharmaceutical industry. This comparative analysis suggests that GSK may need to confront fundamental growth challenges to align with industry standards.

GSK's second quarter performance reflects resilience in revenue generation but underscores areas that warrant investor caution, particularly regarding earnings sustainability. As the company navigates through a difficult phase characterized by market volatility and industry-specific challenges, the focus will be on its strategic moves to improve profitability and deliver shareholder value in the long term.