Better Buy: Axsome Therapeutics vs. Johnson & Johnson

Axsome Therapeutics, Inc. (AXSM) engages in the development of novel therapies for central nervous system (CNS) disorders. Johnson & Johnson (JNJ) develops, manufactures, and sells various products in the healthcare field worldwide.

An aging population and rising chronic diseases are expected to drive the pharmaceutical sector’s growth. Moreover, the integration of advanced technologies in the drug development process and early detection of diseases should propel the industries’ growth.

Artificial intelligence (AI) trends have significantly improved pharmaceutical manufacturing and patient identification. The global pharmaceutical market is expected to reach $2,067.36 million by 2028, growing at a CAGR of 5.70%.

AXSM has gained 65.1% over the past month versus JNJ’s 3.5% negative returns. Moreover, AXSM is the clear winner with a 76.2% gain versus JNJ’s 2.9% decline in terms of the year-to-date performance.

But which stock is a better buy now? Let's find out.

Latest Developments

Recently, AXSM announced that the U.S. Food and Drug Administration (FDA) approved AUVELITYTM (dextromethorphan HBr -bupropion HCl) extended-release tablets for the treatment of the major depressive disorder (MDD) in adults.1 AUVELITY is the first and only rapid-acting oral medicine approved for the treatment of MDD with the labeling of statistically important antidepressant efficacy compared to placebo starting at one week.

In June, JNJ announced the launch of the new J&J Satellite Center for Global Health Discovery (Satellite Center) at Singapore's Duke-NUS Medical School, jointly established by Duke University and the National University of Singapore (NUS) as a graduate-entry medical school and research powerhouse.

Recent Financial Results

During the second quarter ending June 30, 2022, AXSM’s operating expenses increased 55.6% year-over-year to $48.00 million. Its loss from operations grew 27% from its prior-year quarter to $39.81 million, while its net loss grew 28.4% from its year-ago value to $41.44 million. The company’s loss per share rose 23.3% year-over-year to $1.06.

For the second quarter of 2022, JNJ’s sales increased 3% year-over-year to $24.02 billion. Its gross profit improved 2.4% year-over-year to $16.10 billion, while its adjusted net earnings amounted to $4.81 billion. The company’s adjusted EPS came in at $2.59, up 4.4% from its prior-year quarter.

Past and Expected Financial Performance

The company's EPS is expected to decline 21.5% in the current quarter and 27.7% in the current year but increase 34.3% next quarter. Its EPS is expected to decline at a rate of 49.6% per annum over the next five years.

Analysts expect JNJ revenue to increase 1.4% in the current year and 4% next year. The company's EPS is expected to grow 6.6% in the next quarter, 2.8% in the current year, and 5.2% next year. Its EPS is expected to grow at a rate of 4.1% per annum over the next five years.

Profitability

AXSM’s gross profit margin of 88.86% compares to JNJ’s 67.95%. However, JNJ’s ROE, ROA, and ROTC of 25.17%, 0.13%, and 14.86% compare with AXSM’s negative 346.11%, 1.24%, and 78.16%, respectively.

Valuation

In terms of forward EV/Sales, AXSM is currently trading at 49.41x, 971.8% higher than JNJ’s 4.61x. Moreover, AXSM’s trailing-12-month Price/Sales ratio of 279.29x is 5958.4% higher than JNJ's 4.61x.

POWR Ratings

AXSM has an overall rating of D, which equates to Sell in our proprietary POWR Ratings system. In contrast, JNJ has an overall rating of A, which translates to Strong Buy. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

JNJ has an A grade for Stability, in sync with the company's 0.59 beta. On the other hand, AXSM has an F for Stability, which is justified considering its 1.92 beta. Also, JNJ has a B grade for Sentiment, consistent with the impressive earnings estimates. On the contrary, AXSM has a D grade for Sentiment, given its weak consensus earnings estimates.

Of the 167 stocks in the F-rated Medical - Pharmaceuticals industry, AXSM is ranked #157, while JNJ is ranked first.

Beyond what we've stated above, we have also rated both the stocks for Value, Momentum, Stability, and Quality. Click here to view AXSM ratings. Get all JNJ ratings here.

The Winner

While both AXSM and JNJ are expected to benefit from the industry tailwinds, JNJ’s lower valuation, robust financials, and solid growth prospects make it a better buy now.

Our research shows that odds of success increase when one invests in stocks with an Overall Rating of Strong Buy or Buy. View all the top-rated stocks in the Medical – Pharmaceuticals industry here.

JNJ shares were unchanged in premarket trading Wednesday. Year-to-date, JNJ has declined -0.98%, versus a -12.54% rise in the benchmark S&P 500 index during the same period.

Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.

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