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.
In the case of Bristol-Myers, despite the obvious signs of slowing growth, Wall Street assigning the company a price-to-sales ratio of five is a mistake. This is more than one point higher than the industry P/S of 3.90. With revenue growth projected to decline for all of 2015, it's fair to ask, where's the value?
What's more, with the recent patent expiration of blood-thinner drug Plavix, Bristol-Myers must continue to invest in growth opportunities to fight off the punches not only from generic competition but from giants like Johnson & Johnson. Johnson & Johnson's recently acquired drug Xarelto, an anticoagulant for preventing blood clots, is now competing head on with Bristol-Myers' new blockbuster drug Eliquis.
Likewise, although Bristol-Myers sales of Sprycel and Yervoy continue to grow at 18% and 38%, respectively, expiring patents on other key drugs remain a concern. The company's plans to apply for a U.S. license for Opdivo, which is used to treat advanced Melanoma, is no slam dunk. To some extent this is one of the products the market is basing Bristol-Myers' future on.
All told, I would caution investors about betting too much here on one key product. These shares aren't cheap. With potential pricing pressure and margin weakness due to expiring patents, these shares can still fall to the low $40s. To that end, until Bristol-Myers can justify its expensive P/E of 29, these shares are -- at best -- a hold.
At the time of publication, the author held no positions in any of the stocks mentioned, although positions may change at any time.
This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
TheStreet Ratings team rates BRISTOL-MYERS SQUIBB CO as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate BRISTOL-MYERS SQUIBB CO (BMY) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures, reasonable valuation levels, notable return on equity, increase in stock price during the past year and expanding profit margins. We feel these strengths outweigh the fact that the company has had sub par growth in net income." You can view the full analysis from the report here: BMY Ratings Report