GSK’s (LSE: GSK) share price has failed to keep pace with the momentum building inside the business. In fact, it is down 14% from its 18 February 12-month traded high of £22.82.
Earnings, cash flow and pipeline progress all point in a far more positive direction than the market is pricing in. And that mismatch is where the undervaluation story really begins.
So what sort of gains could we be looking at?
What’s the price-to-value gap here?
In stock markets, price and value rarely march in step. Price reflects short‑term sentiment, while value is anchored in a company’s real fundamentals.
For investors who think in years rather than days, that mismatch is crucial. Markets eventually pull prices back towards ‘fair value’, and that journey is where long‑term profits are often made.
Discounted cash flow (DCF) modelling is the gold standard used by professional investors to determine this value.
It anchors a stock’s value by estimating the cash it will generate in the years ahead and discounting those amounts back to the present. When those earnings forecasts become less clear, the discount rate increases.
Because analysts may use different inputs here, among other assumptions, their DCF valuations can vary. But based on my own modelling, including a 7.4% discount rate, GSK shares appear 58% undervalued at their present £19.64 price.
That suggests a fair value of £46.76 — more than twice today’s level. So, should prices continue gravitating toward fair value over time, this may represent an excellent buying opportunity if those DCF assumptions prove accurate.
What will drive the upwards re-rating?
GSK’s long‑term cash‑flow engine is the breadth and depth of its vaccines, speciality meds, HIV and respiratory treatments, and the late‑stage pipeline.
A real risk here is any regulatory or clinical setback in this pipeline, which could delay future revenue and reduce earnings. Another is an increase in government pressure to lower prices, particularly in the US.
Nevertheless, analysts project GSK’s earnings — which power cash flow — will increase by a yearly average of 5.7% to end-2028 at minimum. This looks an underestimate to me, given its recent strong of strong results.
Q1 2026, for example, saw core operating profit jump 10% year on year to £2.65bn, powered by its speciality medicines. Management said it expects core earnings per share growth of 7%–9% this year. And it also projected sales of more than £40bn by 2031, against 2025’s £32.7bn.
In the full-year 2025 numbers, the firm highlighted strong pipeline progress, including five major FDA approvals and seven major trial starts. This year, two new major product approvals are expected, five major readouts, and 10 major trial starts.
My investment view
GSK’s powerful long‑term cash‑flow engine and clear earnings momentum underline the deeply discounted valuation.
The scale of its vaccines and speciality medicines franchises — backed by a busy late‑stage pipeline — makes me believe that cash flows will keep compounding over time.
So, I think the stock merits serious consideration from other long‑term investors who focus on fundamentals rather than short‑term sentiment.
I will also be buying more of the stock very shortly. And I have also noticed a handful of other stocks in different sectors that look very undervalued given their strong earnings growth.
Should you invest £5,000 in GSK right now?
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Simon Watkins owns shares in GSK.
