Bristol-Myers Squibb Company (NYSE:BMY) shares are up more than 6.13% this year and recently decreased -1.39% or -$0.86 to settle at $61.16. AbbVie Inc. (NYSE:ABBV), on the other hand, is up 52.36% year to date as of 12/05/2017. It currently trades at $93.90 and has returned -0.01% during the past week.

Bristol-Myers Squibb Company (NYSE:BMY) and AbbVie Inc. (NYSE:ABBV) are the two most active stocks in the Drug Manufacturers – Major industry based on today’s trading volumes. To determine if one is a better investment than the other, we will compare the two companies’ growth, profitability, risk, return, and valuation characteristics, as well as their analyst ratings and sentiment signals.

**Growth**

The ability to consistently grow earnings at a high compound rate is a defining characteristic of the best companies for long-term investment. Analysts expect BMY to grow earnings at a 10.86% annual rate over the next 5 years. Comparatively, ABBV is expected to grow at a 15.21% annual rate. All else equal, ABBV’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 40.46% for AbbVie Inc. (ABBV). BMY’s ROI is 19.80% while ABBV has a ROI of 18.00%. The interpretation is that BMY’s business generates a higher return on investment than ABBV’s.

**Cash Flow **

The value of a stock is simply the present value of its future free cash flows. BMY’s free cash flow (“FCF”) per share for the trailing twelve months was +0.49. Comparatively, ABBV’s free cash flow per share was +1.32. On a percent-of-sales basis, BMY’s free cash flow was 4.13% while ABBV converted 8.22% of its revenues into cash flow. This means that, for a given level of sales, ABBV is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Analysts look at liquidity and leverage ratios to assess how easily a company can cover its liabilities. BMY has a current ratio of 1.60 compared to 1.50 for ABBV. This means that BMY can more easily cover its most immediate liabilities over the next twelve months. BMY’s debt-to-equity ratio is 0.57 versus a D/E of 5.65 for ABBV. ABBV is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

BMY trades at a forward P/E of 19.11, a P/B of 6.88, and a P/S of 4.94, compared to a forward P/E of 14.52, a P/B of 22.77, and a P/S of 5.59 for ABBV. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

**Analyst Price Targets and Opinions**

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. BMY is currently priced at a -4.17% to its one-year price target of 63.82. Comparatively, ABBV is -5.96% relative to its price target of 99.85. This suggests that ABBV is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.40 for BMY and 2.30 for ABBV, which implies that analysts are more bullish on the outlook for BMY.

**Risk and Volatility**

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. BMY has a beta of 1.17 and ABBV’s beta is 1.53. BMY’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Short interest, or the percentage of a stock’s tradable shares currently being shorted, is another metric investors use to get a pulse on sentiment.BMY has a short ratio of 1.43 compared to a short interest of 2.21 for ABBV. This implies that the market is currently less bearish on the outlook for BMY.

**Summary**

AbbVie Inc. (NYSE:ABBV) beats Bristol-Myers Squibb Company (NYSE:BMY) on a total of 7 of the 14 factors compared between the two stocks. ABBV generates a higher return on investment, is more profitable, has higher cash flow per share and has a higher cash conversion rate. ABBV is more undervalued relative to its price target. Finally, DRRX has better sentiment signals based on short interest.