Bristol Myers Squibb Co. (BMY): Is This Company Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Bristol Myers Squibb Co. (NYSE:BMY) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for
The graphs you’re about to see tell Bristol Myers Squibb Co. (NYSE:BMY)’s story, and we’ll be grading the quality of that story in several ways:

Growth: are profits, margins, and free cash flow all increasing?

Valuation: is share price growing in line with earnings per share?

Opportunities: is return on equity increasing while debt to equity declines?

Dividends: are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let’s take a look at Bristol Myers Squibb Co. (NYSE:BMY)’s key statistics:

BMY Total Return Price data by YCharts.

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	(6.3%)	Fail
Improving profit margin	42.8%	Pass
Free cash flow growth > Net income growth	64.3% vs. (81.5%)	Pass
Improving EPS	(78.3%)	Fail
Stock growth (+ 15%) < EPS growth	83.7% vs. (78.3%)	Fail

Source: YCharts. * Period begins at end of Q4 2009.

BMY Return on Equity data by YCharts.

Passing Criteria	3-Year* Change	Grade
Improving return on equity	(83.2%)	Fail
Declining debt to equity	26%	Fail
Dividend growth > 25%	9.4%	Fail
Free cash flow payout ratio < 50%	35.8%	Pass

Source: YCharts. * Period begins at end of Q4 2009.

How we got here and where we’re going
A mere three out of nine passing grades isn’t particularly compelling for a well-established pharmaceutical leader. What looms over the horizon for Bristol Myers Squibb Co. (NYSE:BMY)? Are there drugs in the pipeline ready to bridge the inevitable patent cliff, or will investors be taken over the edge by a company with some wildly divergent financial fundamentals?

My fellow Fool Sean Williams pointed out valid reasons for optimism earlier this year, despite the big drop in net income of late. Most notably, the approval of stroke-prevention drug Eliquis, which was developed in tandem with Pfizer Inc. (NYSE:PFE), is big news. The current stroke-prevention treatments don’t seem to hold a candle to Eliquis, which points to multibillion-dollar sales down the line. The oral SGLT-2 inhibitor drug Forxiga, developed with AstraZeneca plc (ADR) (NYSE:AZN), could also be a big step forward in diabetes treatments.