Johnson & Johnson (NYSE: NYSE:JNJ) is a $358 billion company today. Investors that bought shares one year ago are sitting on a 10.56% total return. That's below the S&P 500's return of 16.05%.
Johnson & Johnson stock is underperforming the market. It's beaten down, but it reports earnings next week. So is it a good time to buy? To answer this question, we've turned to the Investment U Stock Grader. Our Research Team built this system to diagnose the financial health of a company.
Our system looks at six key metrics...
✗ Earnings-per-Share (EPS) Growth: Johnson & Johnson reported a recent EPS growth rate of 0.62%. That's below the pharmaceuticals industry average of 242.54%. That's not a good sign. We like to see companies that have higher earnings growth.
Price-to-Earnings
P/E is a valuation ratio of a company’s EPS compared to its current share price. Generally speaking, a high P/E means the market is bullish on a stock, but it can also signal that a stock is overpriced. What we look for is a stock trading below its industry average. This means we can get a better deal on a stock compared to its peers. (P/E): The average price-to-earnings ratio of the pharmaceuticals industry is 113.93. And Johnson & Johnson's ratio comes in at 20.92. It's trading at a better value than many of its competitors.
Debt-to-Equity
Debt-to-equity measures a company’s liabilities compared to its stockholders’ equity. The ratio measures a company’s financial leverage. In general, a high debt-to-equity ratio means a company has been aggressively financing its growth with debt. As with P/E, we want to see where a company stands compared to its peers since some industries are more capital-intensive than others.: The debt-to-equity ratio for Johnson & Johnson stock is 46.02%. That's below the pharmaceuticals industry average of 57.48%. The company is less leveraged.
✗ Free Cash Flow per Share Growth
Free cash flow (FCF) per share growth helps determine a company’s financial flexibility. It compares free cash flow to the total number of shares outstanding. At IU, we look for companies that are growing their cash flow year-over-year. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth.: Johnson & Johnson's FCF has been lower than that of its competitors over the last year. That's not good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It's one of our most important fundamental factors.
✓ Profit Margins : The profit margin of Johnson & Johnson comes in at 24.89% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. Johnson & Johnson's profit margin is above the pharmaceuticals average of 11.75%. So that's a positive indicator for investors.
✓ Return on Equity : Return on equity tells us how much profit a company produces with the money shareholders invest. The ROE for Johnson & Johnson is 23.09%, and that's above its industry average ROE of 17.77%.
Johnson & Johnson stock passes four of our six key metrics today. That's why our Investment U Stock Grader rates it as a Buy With Caution.