Even though Bristol-Myers Squibb (currently trading at $66.44 per share) has gained 6.6% over the last six months, it has lagged the S&P 500’s 12.3% return during that period. This might have investors contemplating their next move.
Is there a buying opportunity in Bristol-Myers Squibb, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Bristol-Myers Squibb Not Exciting?
We don’t have much confidence in Bristol-Myers Squibb. Here are three reasons why BMY doesn’t excite us, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Bristol-Myers Squibb’s sales grew at a tepid 2.1% compounded annual growth rate over the last five years. This fell short of our benchmarks.
2. Shrinking Adjusted Operating Margin
Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.
Looking at the trend in its profitability, Bristol-Myers Squibb’s adjusted operating margin decreased by 8.2 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 33.1%.
3. EPS Growth Has Stalled
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
Bristol-Myers Squibb’s flat EPS over the last five years was below its 2.1% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
Bristol-Myers Squibb isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 10.4× forward P/E (or $66.44 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top digital advertising picks.
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