DOW Dropped 23% In A Month. Have You Fully Evaluated The Risk?
Dow (DOW) stock is down 23.2% in 21 trading days. While history suggests price dips recover, there is risk – specific to growth, profitability, balance sheet and downturn resilience. Consider the following data:
- Size: A $15 Bil company with $43 Bil in revenue currently trading at $21.71.
- Fundamentals: Last 12 month revenue growth of -2.1% and operating margin of 3.2%.
- Liquidity: Has Debt to Equity ratio of 1.2 and Cash to Assets ratio of 0.0
- Valuation: Currently trading at P/E multiple of 50.4 and P/EBIT multiple of 9.2
- Has returned (median) 49.3% within a year following sharp dips since 2010. See DOW Dip Buy Analysis.
While we like to buy dips if the fundamentals check out – for DOW, see Buy or Sell DOW Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and DOW drops another 20-30% to $15.20 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience.
Below is a deep dive into Dow (DOW) downturn resilience – specifically, its performance vs the market during past crises? Turns out, the stock has fared much worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.
Below are the details, but before that, as a quick background: DOW provides advanced materials science solutions across packaging, infrastructure, coatings, and consumer care markets globally, including specialty plastics, industrial intermediates, performance materials, and insurance services.
2022 Inflation Shock
- DOW stock fell 38.5% from a high of $70.61 on 4 May 2022 to $43.39 on 26 September 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
- The stock is yet to recover to its pre-Crisis high
- The highest the stock has reached since then is $60.51 on 7 February 2023 , and currently trades at $21.71
| DOW | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -38.5% | -25.4% |
| Time to Full Recovery | Not Fully Recovered days | 464 days |
2020 Covid Pandemic
- DOW stock fell 59.8% from a high of $54.73 on 1 January 2020 to $22.00 on 16 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 18 November 2020
| DOW | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -59.8% | -33.9% |
| Time to Full Recovery | 247 days | 148 days |
2018 Correction
- DOW stock fell 38.9% from a high of $66.65 on 31 August 2017 to $40.71 on 23 August 2019 vs. a peak-to-trough decline of 19.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 5 May 2021
| DOW | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -38.9% | -19.8% |
| Time to Full Recovery | 621 days | 120 days |
2008 Global Financial Crisis
- DOW stock fell 86.7% from a high of $47.67 on 19 July 2007 to $6.33 on 9 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
- However, the stock fully recovered to its pre-Crisis peak by 26 February 2014
| DOW | S&P 500 | |
|---|---|---|
| % Change from Pre-Recession Peak | -86.7% | -56.8% |
| Time to Full Recovery | 1815 days | 1480 days |
Worried that DOW could fall much more? You could take a look at the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.