Bristol Myers Squibb (BMY 0.05%) is a big name in healthcare. And over the years, it has always found ways to grow and expand its business. But this hasn't been a good buy of late. It's not just this year that the stock has struggled, either.
In the past 10 years, the stock has declined by 12%. By comparison, the S&P 500 has rallied 178%. If you put $10,000 into Bristol Myers stock 10 years ago, it would be worth less than $8,800 today, versus nearly $27,800 if you just invested in the broad index.
Investing in what was supposed to be a top growth stock in healthcare simply hasn't paid off for investors -- not by a long shot. But the past doesn't predict the future. The markets are arguably overheated, and Bristol Myers stock looks cheap, maybe too cheap. Could the pattern reverse, and could Bristol Myers be a solid market-beating stock to own over the next 10 years?
Bristol Myers' debt load has been increasing
For Bristol Myers to turn things around, investors will definitely want to see it begin to chip away at its rising debt load.
Over the years, the company has pursued mergers and acquisitions while also paying a dividend. That's not easy to do, which is why the business has resorted to taking on debt to finance all of its ambitions. In doing so, however, that has resulted in a soaring debt load.
BMY Total Long Term Debt (Quarterly) data by YCharts
Bristol Myers has generated positive free cash flow totaling $12.5 billion over the trailing 12 months, which allows it to spend that money on growing the business, paying a dividend, and paying down debt. But with dividend payments totaling around $4.8 billion over the course of a full year, that puts a serious dent in available free cash. There's definitely room for the business to pay down its debt, but how aggressively Bristol Myers will be able to do so is questionable.
That isn't the only cliff the company has to worry about
At the same time, the healthcare company is facing question marks relating to its growth opportunities. Bristol Myers is currently growing in single digits, which isn't terribly inspiring for growth investors. And it's also facing patent cliffs ahead for multiple drugs, including Eliquis and Opdivo. Top-selling drug Revlimid has already begun to lose revenue due to competition from generics.
The company plans to add $25 billion in revenue from new products by 2029. But last year, Eliquis, Opdivo, and Revlimid combined for $27.3 billion. The new products may simply end up offsetting the loss in revenue the business will experience in the years ahead, putting Bristol Myers effectively at around the same level of revenue growth it's generating today. And this leads me to believe that it will continue to have to rely on acquisitions for future growth, which may require the business to take on even more debt.
Is Bristol Myers stock a good buy right now?
Bristol Myers isn't a stock I'd buy right now. It may be a good option for dividend investors who want to take advantage of its 5.7%-yielding payout, but besides that, I don't see a reason worth investing in the stock. Although it looks like it may be reasonably priced, trading at 23 times earnings, given its questionable growth prospects and its high debt load, I don't see a compelling reason to believe that this will be a market-beating stock anytime soon. There are too many challenges ahead for the businesses, and investors are likely better off pursuing other growth stocks instead.
