Is Bristol-Myers Squibb Co. 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 (BMY 1.30%) 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'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's key statistics:

BMY Total Return Price data. Source: YCharts.

Source: YCharts. * Period begins at end of Q1 2011.

BMY Return on Equity (TTM) data. Source: YCharts.

Source: YCharts. * Period begins at end of Q1 2011.

How we got here and where we're going
Bristol-Myers Squibb has fallen further from last year's disappointing three-of-nine score to earn a measly one passing grade out of nine tests today. The only positive showing here is a slight uptick in Bristol's profit margins, but that hasn't been enough to offset an across-the-board drop in other key metrics. Bristol is now paying out more than half of its free cash flow as dividends as well, and this could become an issue if the company can't find a way to boost its fundamentals. Is this a company about to plunge headfirst off the patent cliff, or will Bristol find new avenues of growth and justify investors' faith once again? Let's dig deeper to find out.

Bristol's first half has not been particularly good to patient investors, as shares slipped from a strong 2013 into a loss of nearly 8% as the market began to step back in anticipation of more blockbuster drugs going off patent. However, Bristol's research focus appears to be well chosen, as Fool pharmaceuticals specialist Cory Renauer notes four potential blockbusters growing sales at double-digit rates. Leukemia drug Sprycel saw 19% year-over-year sales growth, and blood-thinner Eliquis -- developed in partnership with Pfizer (PFE 0.30%) -- saw 49% year-over-year growth. Bristol's phase 3 trials of immuno-oncology drug nivolumab also proved so successful that trials were halted so that placebo-group subjects wouldn't miss out on potential benefits.

Bristol has also found itself -- willingly or not -- caught up in the buyout frenzy that's gripped the health-care industry lately. Two years ago, the company made a colossally ill-conceived move when it bought development-stage biotech Inhibitex to get into the hepatitis C treatment field. Inhibitex failed in its quest to create a blockbuster hep C treatment, and Gilead Sciences' (GILD 0.34%) monster success with Sovaldi has shown what Bristol could have had if Inhibitex had developed a better drug. Now, analysts have begun to consider the possibility that Bristol itself might become the target of a buyout -- Chimera Research's Patrick Crutcher has postulated that Pfizer could pursue Bristol now that its latest acquisition target appears to have moved out of reach. This might be a long shot, since Pfizer was pursuing an international acquisition to make use of its overseas war chest, which is far larger than its domestic cash on hand.

Yield-seeking investors should keep all of these moves in mind as Bristol moves to replace its expiring blockbusters. Pharmaceutical stocks have been dividend favorites for years, but Fool contributor Todd Campbell has pointed out that Bristol's patent cliff is more dangerous than that of many peers, and a lack of adequate cushion (in the form of new blockbusters) would undermine its ability to sustain payouts. Bristol's dividend has grown more slowly than that of most Big Pharma stocks over the past five years, and yet it currently pays out more of its free cash flow as dividends than most peers, which will make it especially susceptible should old blockbusters not be adequately replaced.

Putting the pieces together
Today, Bristol-Myers Squibb has few of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.