With a daily gain of 2% and a 3-month loss of -5.75%, Bristol-Myers Squibb Co (BMY, Financial) has an Earnings Per Share (EPS) of 3.76. The question arises: is this stock modestly undervalued? In this analysis, we delve into the company's valuation, considering its current market situation and future prospects. We invite you to join us in this exploration.
A Snapshot of Bristol-Myers Squibb Co
Bristol-Myers Squibb Co discovers, develops, and markets drugs for various therapeutic areas, such as cardiovascular, cancer, and immune disorders. The company is a leader in immuno-oncology drug development. With close to 70% of total sales derived from the U.S., Bristol-Myers Squibb Co shows a higher dependence on the U.S. market than most of its peer group. The company's stock price is currently at $62.15, while its estimated fair value (GF Value) is $72.22, suggesting that it might be undervalued.
Understanding the GF Value
The GF Value is a unique valuation model that takes into account historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page offers an overview of the fair trading value of a stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our valuation model, Bristol-Myers Squibb Co's stock appears to be modestly undervalued. With a market cap of $129.80 billion, the stock's current price of $62.15 per share is below the GF Value Line, suggesting the potential for higher future returns.
Because Bristol-Myers Squibb Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
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Assessing Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to carefully review a company's financial strength before buying its stock. Bristol-Myers Squibb Co has a cash-to-debt ratio of 0.22, which is worse than 75.9% of companies in the Drug Manufacturers industry. GuruFocus ranks the overall financial strength of Bristol-Myers Squibb Co at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, typically carries less risk. Bristol-Myers Squibb Co has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $45.20 billion and Earnings Per Share (EPS) of $3.76. Its operating margin is 17.98%, which ranks better than 81.98% of companies in the Drug Manufacturers industry. Overall, GuruFocus ranks the profitability of Bristol-Myers Squibb Co at 8 out of 10, indicating strong profitability.
Growth is probably one of the most important factors in the valuation of a company. Bristol-Myers Squibb Co's 3-year average revenue growth rate is better than 69.8% of companies in the Drug Manufacturers industry. Bristol-Myers Squibb Co's 3-year average EBITDA growth rate is 27.6%, which ranks better than 75.06% of companies in the Drug Manufacturers industry.
ROIC vs WACC
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 Co's return on invested capital is 8.95, and its cost of capital is 5.21.
Conclusion
Overall, Bristol-Myers Squibb Co (BMY, Financial) stock appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 75.06% of companies in the Drug Manufacturers industry. To learn more about Bristol-Myers Squibb Co stock, you can check out its 30-Year Financials here.
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