Right now, GlaxoSmithKline Inc. GSK share price is at $38.53, after a 0.62% drop. Over the past month, the stock spiked by 2.75%, but over the past year, it actually decreased by 8.52%. With questionable short-term performance like this, and great long-term performance, long-term shareholders might want to start looking into the company's price-to-earnings ratio.

The stock is currently above its 52 week low by 15.84%. Assuming that all other factors are held constant, this could present itself as an opportunity for investors trying to diversify their portfolio with Pharmaceuticals stocks, and capitalize on the lower share price observed over the year.

The P/E ratio is used by long-term shareholders to assess the company's market performance against aggregate market data, historical earnings, and the industry at large. A lower P/E can either represent a company's poor future earnings potential or a buying opportunity relative to other stocks. It shows that shareholders are less than willing to pay a high share price, because they do not expect the company to exhibit growth, in terms of future earnings.

Most often, an industry will prevail in a particular phase of a business cycle, than other industries.

Compared to the aggregate P/E ratio of the 28.13 in the Pharmaceuticals industry, GlaxoSmithKline Inc. has a lower P/E ratio of 13.18. Shareholders might be inclined to think that the stock might perform worse than its industry peers. It's also possible that the stock is undervalued.

P/E ratio is not always a great indicator of the company's performance. Depending on the earnings makeup of a company, investors can become unable to attain key insights from trailing earnings.