The stock of Bristol-Myers Squibb Company (NYSE:BMY, 30-year Financials) shows every sign of being fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $65.4 per share and the market cap of $146 billion, Bristol-Myers Squibb Company stock gives every indication of being fairly valued. GF Value for Bristol-Myers Squibb Company is shown in the chart below.
Because Bristol-Myers Squibb Company is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 14.4% over the past three years and is estimated to grow 6.73% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Bristol-Myers Squibb Company has a cash-to-debt ratio of 0.28, which ranks worse than 76% of the companies in Drug Manufacturers industry. Based on this, GuruFocus ranks Bristol-Myers Squibb Company's financial strength as 4 out of 10, suggesting poor balance sheet. This is the debt and cash of Bristol-Myers Squibb Company over the past years:
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Bristol-Myers Squibb Company has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $42.8 billion and loss of $2.78 a share. Its operating margin is 7.53%, which ranks in the middle range of the companies in Drug Manufacturers industry. Overall, the profitability of Bristol-Myers Squibb Company is ranked 7 out of 10, which indicates fair profitability. This is the revenue and net income of Bristol-Myers Squibb Company over the past years:
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Bristol-Myers Squibb Company is 14.4%, which ranks better than 74% of the companies in Drug Manufacturers industry. The 3-year average EBITDA growth rate is -16.1%, which ranks worse than 80% of the companies in Drug Manufacturers industry.
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Bristol-Myers Squibb Company's return on invested capital is 4.69, and its cost of capital is 4.36. The historical ROIC vs WACC comparison of Bristol-Myers Squibb Company is shown below:
In closing, the stock of Bristol-Myers Squibb Company (NYSE:BMY, 30-year Financials) gives every indication of being fairly valued. The company's financial condition is poor and its profitability is fair. Its growth ranks worse than 80% of the companies in Drug Manufacturers industry. To learn more about Bristol-Myers Squibb Company stock, you can check out its 30-year Financials here.
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