Merck Stock Pricing Powerhouse Now 17% Cheaper, Buy?
Merck (MRK) stock deserves your consideration. Why? Because you get monopoly-like high margins for a discounted price. Here is some data.
- Revenue Growth: Merck saw growth of 1.8% LTM and 3.7% last 3 year average.
- Recent Profitability: Nearly 29.1% operating cash flow margin and 31.2% operating margin LTM.
- Long-Term Profitability: About 27.2% operating cash flow margin and 22.6% operating margin last 3 year average.
- Available At Discount: At P/S multiple of 3.3, MRK stock is available at a 17% discount vs 1 year ago.
While revenue growth helps, this is not a growth perspective. Pricing power and high margins generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. Market tends to reward that.
As a quick background, Merck provides pharmaceutical products for human health across multiple therapeutic areas and develops veterinary pharmaceuticals, vaccines, and health management solutions for animal health.
| MRK | S&P Median | |
|---|---|---|
| Sector | Health Care | – |
| Industry | Pharmaceuticals | – |
| PS Ratio | 3.3 | 3.2 |
| PE Ratio | 12.8 | 23.9 |
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| LTM* Revenue Growth | 1.8% | 5.2% |
| 3Y Average Annual Revenue Growth | 3.7% | 5.3% |
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| LTM* Operating Margin | 31.2% | 18.6% |
| 3Y Average Operating Margin | 22.6% | 17.8% |
| LTM* Op Cash Flow Margin | 29.1% | 20.3% |
| 3Y Average Op Cash Flow Margin | 27.2% | 19.8% |
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| DE Ratio | 16.8% | 21.7% |
*LTM: Last Twelve Months
But do these numbers tell the full story? Read Buy or Sell MRK Stock to see if Merck still has an edge that holds up under the hood.
Single stock can be risky, but there is a huge value to a broader diversified approach we take with Trefis High Quality Portfolio. Separately, consider what could long-term performance for your portfolio be if you combined 10% commodities, 10% gold, and 2% crypto with equities.
Stocks Like These Can Outperform. Here Is Data
Here is how we make the selection: We consider stocks > $10 Bil in market cap, and then filter out those with high CFO (cash flow from operations) margins or operating margins. We additionally consider only those stocks that have meaningfully declined in valuation over the past 1 year.
Below are statistics for stocks with this selection strategy applied since 12/31/2016.
- Average 12-month forward returns of nearly 19%
- 12-month win rate (percentage of picks returning positive) of about 72%
But Consider The Risk
That said, MRK isn’t immune to big drops. It fell about 38% during the Dot-Com Bubble and took a 63% hit in the Global Financial Crisis. Smaller shocks like 2018 and the inflation surge still knocked it down 18% to 20%. Even the Covid sell-off sliced nearly 27% off its peak. Solid fundamentals matter, but when fear hits, MRK’s no exception to significant pullbacks.
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.