GSK and Sopheon’s share prices have beaten the FTSE 100 by 20%, is it time to buy?
Since the start of the year, the performance of the FTSE 100 has been relatively disappointing. It has declined by 5%, with investor sentiment coming under pressure in recent months after the index reached an all-time high in May.
However, a number of shares have been able to beat the index during this time. GlaxoSmithKline (LSE: GSK) has performed well, rising by around 15%. Similarly, software and services provider Sopheon(LSE: SPE) gained 10% on Monday following its trading update. This takes its gain for 2018 to around 180%. Looking ahead, could there be further growth to come from either stock?
Sopheon’s trading update showed that the third quarter of the year was exceptionally strong. Momentum since the second quarter has been maintained, and a number of further transactions have been signed. This has resulted in a record third quarter. Contract wins have included two material contracts booked during the final days of the quarter which have helped to break revenue visibility through the $30m level.
The company remains optimistic on its future outlook. It views the continued delivery of commercial results as indicative of the growing maturity of the market that it serves, while its sales pipeline activity for the balance of the year remains robust.
Sopheon is expected to report a rise in earnings of 27% in the next financial year. This puts it on a price-to-earnings growth (PEG) ratio of 0.9, which suggests that it continues to offer good value for money. Therefore, even after its sharp rise in value over recent months, there could be further upside ahead.
The prospects for GlaxoSmithKline also appear to be improving. The company has the potential to capitalise on the world’s ageing population through its focus on consumer healthcare products, vaccines and pharmaceutical products. Its recent decision to focus on a smaller number of higher-reward products within its pipeline may provide it with a stronger growth outlook over the long run, which could help it to justify a higher valuation.
At the present time, the company has a dividend yield of around 5.2%. This suggests that there could be a margin of safety on offer. With the company expected to report a 4% rise in earnings in the next financial year, dividend growth could be restarted after an extended period of flat payments. This has helped to boost the company’s dividend cover so that it now stands at 1.4. This suggests that there could be improving income investing potential on offer over the medium term.
With GlaxoSmithKline having a diverse and relatively defensive business model, it could prove to be popular should the FTSE 100 experience uncertainty over the coming years. After a 10-year bull market, defensive shares could become more enticing to long-term investors over the next few years, with the chances of a further decade of uninterrupted stock market growth being unlikely.
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Peter Stephens owns shares of GlaxoSmithKline. The Motley Fool UK owns shares of and has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.