Is Now the Right Time to Invest in Johnson & Johnson Stock?

Updated On: May 15, 2025 2:46 am

Johnson & Johnson: Analyzing Current Valuation Amid Market Turbulence

President Trump’s recent executive order aimed at reducing U.S. drug prices to match international levels initially caused a downturn in pharmaceutical stocks. Nonetheless, these stocks saw a recovery as Wall Street analysts identified significant legal challenges facing the order. The pharmaceutical sector argues that the higher drug prices in the U.S. are vital for funding research and development (R&D) that leads to new treatments, asserting that price controls could hinder their R&D investments.

This regulatory move raises concerns for major pharmaceutical companies, particularly Johnson & Johnson (NYSE: JNJ). This brings us to a pivotal question: Is JNJ a worthwhile investment at its current trading price of around $155? Our analysis suggests it is. While we acknowledge some minor concerns, we find JNJ’s valuation reasonable when compared to its recent operating performance and overall financial health. Our evaluation across key metrics—Growth, Profitability, Financial Stability, and Downturn Resilience—indicates that Johnson & Johnson has robust operating performance and a solid financial position. For those seeking lower volatility than individual stocks, the Trefis High Quality portfolio offers a viable alternative, having outperformed the S&P 500 with returns exceeding 91% since its inception.

Image by Renate Köppel from Pixabay

Valuation Comparison: Johnson & Johnson vs. S&P 500

Evaluating valuation through the lens of sales and profit metrics, JNJ is currently priced in line with the broader market.

Johnson & Johnson has a price-to-sales (P/S) ratio of 4.2, compared to 2.8 for the S&P 500.
Its price-to-free cash flow (P/FCF) ratio stands at 15.5, while the S&P 500’s is 17.6.
JNJ’s price-to-earnings (P/E) ratio is 26.7, compared to 24.5 for the benchmark index.

Revenue Growth Trends for Johnson & Johnson

Johnson & Johnson has experienced slight revenue growth over recent years.

The company’s top line has grown at an average rate of 4.1% over the last three years, against a 6.2% increase for the S&P 500.
In the past 12 months, revenues increased by 4.3%, rising from $86 billion to $89 billion, versus 5.3% for the S&P 500.
Quarterly revenues rose by 5.3%, reaching $22 billion, compared to $21 billion a year ago, while the S&P 500 saw a 4.9% improvement.

Profitability Metrics for Johnson & Johnson

Johnson & Johnson’s profit margins are approximately median for companies within the Trefis coverage spectrum.

Operating income over the last four quarters was $22 billion, yielding a moderate operating margin of 24.9% compared to 13.1% for the S&P 500.
Operating cash flow (OCF) during this period totaled $24 billion, reflecting a moderate OCF margin of 27.3% against the S&P 500’s 15.7%.
Net income for the last four quarters amounted to $14 billion, resulting in a net income margin of 15.8%, compared to 11.3% for the S&P 500.

Financial Stability of Johnson & Johnson

Johnson & Johnson’s balance sheet is strong.

The company reported $37 billion in debt, with a market capitalization of $371 billion as of May 12, 2025. This equates to a commendable debt-to-equity ratio of 9.8%, compared to 21.5% for the S&P 500. A lower ratio is preferable.
Cash and cash equivalents account for $39 billion of Johnson & Johnson’s total assets of $194 billion, producing a robust cash-to-assets ratio of 13.6%, slightly below the S&P 500’s 15.0%.

Downturn Resilience of JNJ Stock

JNJ stock has shown greater resilience than the S&P 500 in various recent downturns.

Inflation Shock (2022)

JNJ stock declined by 21.7% from its peak of $186.01 on April 25, 2022, to $145.60 on October 27, 2022, while the S&P 500 saw a drop of 25.4%.
As of now, JNJ has not returned to its pre-crisis high.
Since then, the highest value reached by JNJ was $167.70 on March 10, 2025, and it currently trades around $155.

COVID-19 Pandemic (2020)

The stock fell 27.8% from a high of $153.99 on February 5, 2020, to $111.14 on March 23, 2020, compared to a peak-to-trough decline of 33.9% for the S&P 500.
JNJ stock fully recovered to its pre-crisis level by April 23, 2020.

Global Financial Crisis (2008)

JNJ stock fell 35.5% from its peak of $72.22 on September 8, 2008, to $46.60 on March 9, 2009, against a 56.8% decline for the S&P 500.
The stock fully recovered to its peak by October 18, 2012.

Conclusion: Implications for JNJ Stock

In summary, Johnson & Johnson’s performance on various parameters is outlined as follows:

Growth: Neutral
Profitability: Neutral
Financial Stability: Very Strong
Downturn Resilience: Strong
Overall: Strong

Thus, Johnson & Johnson (JNJ) displays solid performance across evaluated criteria. Although its valuation relative to the S&P 500 is moderate, it appears attractive when contrasted with its own historical averages. The current price-to-earnings (P/E) ratio of 15 times trailing adjusted earnings is appealing compared to its five-year average of 17 times. Consequently, we believe JNJ stock presents a valuable buying opportunity at its current level of approximately $155.

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The views and opinions expressed herein are solely those of the author and do not necessarily reflect those of Nasdaq, Inc.