3 Reasons to Sell BMY and 1 Stock to Buy Instead

What a brutal six months it’s been for Bristol-Myers Squibb. The stock has dropped 20.5% and now trades at $47.55, rattling many shareholders. This may have investors wondering how to approach the situation.

Is now the time to buy Bristol-Myers Squibb, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is Bristol-Myers Squibb Not Exciting?

Even with the cheaper entry price, we're cautious about Bristol-Myers Squibb. Here are three reasons why BMY doesn't excite us and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can have short-term success, but a top-tier one grows for years. Unfortunately, Bristol-Myers Squibb’s 6.5% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the healthcare sector.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Bristol-Myers Squibb’s revenue to drop by 4.6%, a decrease from its 6.5% annualized growth for the past five years. This projection doesn't excite us and indicates its products and services will see some demand headwinds.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, Bristol-Myers Squibb’s ROIC has decreased over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

Bristol-Myers Squibb isn’t a terrible business, but it doesn’t pass our quality test. Following the recent decline, the stock trades at 7.4× forward P/E (or $47.55 per share). This valuation multiple is fair, but we don’t have much faith in the company. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at the most dominant software business in the world.

Stocks We Like More Than Bristol-Myers Squibb

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