Johnson & Johnson (NYSE:JNJ) is no longer trading like a stock that investors have simply overlooked. The shares closed at $264.74 on September 30, considerably up from $185.42 a year earlier, or around 41.66%. Over the same period, the S&P 500 gained about 14.41%. There are nine healthcare stocks other than JNJ in our ranking of the best healthcare stocks to buy according to hedge funds. Check out the complete list here.
That outperformance raises a straightforward question that leads us to question whether J&J’s improving growth profile caught up with its stock price, or whether the market is already pricing in too much optimism.
What Is Working
J&J’s strongest argument is the breadth of its product pipeline, as the company has been expanding beyond its established franchises, particularly in oncology, immunology, and neuroscience.
TREMFYA is a good example, which marks the first and only IL-23 inhibitor offering both subcutaneous and intravenous induction options. In March 2025, the company announced FDA approval of the drug for Crohn’s disease, adding another indication to a treatment that was already approved for ulcerative colitis. J&J highlighted clinical data showing TREMFYA’s ability to deliver remission and endoscopic response, giving the drug another avenue for expansion. CARVYKTI is another important growth opportunity for the company. Updated data released in December 2025 showed that 80% of as-treated standard-risk patients in the CARTITUDE-4 study remained progression- and treatment-free 2.5 years after receiving the therapy as early as first relapse.
J&J has also been adding growth through acquisitions. Its purchase of Intra-Cellular Therapies brought CAPLYTA into the portfolio, with J&J stating that the drug had potential for more than $5 billion in peak-year sales. Meanwhile, MedTech provides another source of expansion, and it reported that the company’s 2026 launch of the Shockwave C2 Aero catheter is designed to broaden the use of intravascular lithotripsy in complex coronary procedures. You can also take a look at our recently published article on Gilead or Johnson & Johnson: Is Faster Growth Better than Greater Diversification? for more comparative insight.
What Could Hold It Back
One of the biggest challenges for Johnson & Johnson is that the growth from its newer products is having to offset significant declines in some established medicines. In the second quarter of 2026, Innovative Medicine’s worldwide operational sales grew 6.8%, driven by oncology products, among others. However, J&J said the growth was partially offset by STELARA, which had an approximately 760-basis-point negative impact, along with declines in REMICADE in Immunology, as well as IMBRUVICA and ZYTIGA in Oncology.
STELARA’s worldwide sales fell 55.2% year over year in fiscal Q2, to $740 million. That is significant for the stock’s valuation because J&J’s newer products need to keep expanding quickly enough to compensate for the erosion of these older franchises.
Is the Valuation Justified?
At $262.02, Johnson & Johnson has a forward P/E of around 23.89 times, and trades at a 28.02% premium to the sector. That is not an inexpensive valuation for a company that generated adjusted EPS growth of 8.1% in 2025. But the market is paying for more than J&J’s recent results, and is paying for the possibility that newer products such as TREMFYA, CARVYKTI and CAPLYTA, alongside MedTech expansion, can sustain a higher growth rate as older franchises mature.
The stock’s 43% gain over the past year means investors have already rewarded that story. The valuation therefore leaves less room for disappointment than it did when J&J traded near $185. Btw, there’s another Dividend King that is trading at 17x forward earnings. Read here.
The Bottom Line
Johnson & Johnson’s valuation looks much more defensible if its newer growth engines continue to expand and offset pressure on mature products. The company has tangible evidence of portfolio expansion, a growing pipeline, and new MedTech opportunities. At the same time, the stock has already substantially outpaced the S&P 500 and now trades at a premium multiple based on its 2026 earnings outlook.
The investment debate has therefore shifted, as J&J is no longer simply a defensive healthcare stock trading on stability, but rather investors are increasingly paying for growth. The question is whether the company’s pipeline can deliver enough of it to support the valuation.
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This article is originally published at Insider Monkey.
