Bristol-Myers Needs a Healthy Growth Shot to Justify Its Valuation

NEW YORK (TheStreet) -- It would be a gross understatement to say Bristol-Myers Squibb (BMY) has been a relative disappointment in 2014.

With shares around $51 and down nearly 4% on the year to date, Bristol-Myers investors could have done much better elsewhere -- Johnson & Johnson (JNJ) , for instance. Johnson & Johnson stock has posted gains of 16% and beating the health care sector's 11% gain, according to Morningstar.

Read More: 10 Stocks George Soros Is Buying

For Bristol-Myers, which pays a solid yield of 2.90%, "patience" continues to be the strategy. Investors don't mind collecting the dividend as long as they know management is doing what it can to deliver on both the top and bottom lines.

That's all well and good. In the meantime, despite the year-to-date underperformance, these shares, which are trading at price-to-earnings ratio of 29, are still too expensive for new investors. That's five points higher than the industry average P/E of 24, according to Yahoo! Finance.

Even more stunning, on a forward-looking basis, Bristol-Myers is projected to earn just $1.73 in earnings for 2015. This means the P/E will still be close to 30 based on next year's estimates. And for a company that just delivered a 4% year-over-year revenue decline and is projected to shed more than 1% in revenue for all of 2015, that's a hefty price to pay.

By contrast, shares of Johnson & Johnson stock are trading at a price-to-earnings ratio of 19, which is five points lower than the industry average P/E. Not only is Johnson & Johnson growing revenue at close to double digits, Johnson & Johnson is delivering seven more points than Bristol-Myers on operating margins.

If you liked this article you might like

Bristol-Myers Squibb Stock Still a Beast?

There Are Good Opportunities in Stock Picking

Halozyme Jumps on Immuno-Oncology Deal with Bristol-Myers

Achillion Shares Are Plunging on Termination of Hepatitis C Pact