Organon Stock Fell 23% in a Day, What Now?

Organon (OGN) stock is down 22.9% in a day. History of recovery post-dips is not on your side and there is fundamental risk – specific to growth, balance sheet and downturn resilience. Consider the following data:

• Size: Organon is a $1.8 Bil company with $6.3 Bil in revenue currently trading at $7.06.
• Fundamentals: Last 12 month revenue growth of -1.0% and operating margin of 21.3%.
• Liquidity: Has Debt to Equity ratio of 4.85 and Cash to Assets ratio of 0.04
• Valuation: Organon stock is currently trading at P/E multiple of 2.6 and P/EBIT multiple of 1.6
• Has returned (median) 18.7% within a year following sharp dips since 2010. See OGN Dip Buy Analysis.

While we like to buy dips if the fundamentals check out – for OGN, see Buy or Sell OGN Stock – we are wary of falling knives. Specifically, it is worth trying to answer if things get really bad, and OGN drops another 20-30% to $5 levels, will we be able to hold on to the stock? What is the worst case scenario? We call it downturn resilience. 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.

A single stock can be risky, but there is a huge value to a broader, diversified approach. If you seek an upside with less volatility than holding an individual stock, consider the Trefis High Quality Portfolio (HQ). HQ has outperformed its benchmark — a combination of S&P 500, Russell, and S&P midcap index — and achieved returns exceeding 91% since its inception. Risk management is key — consider what the long-term portfolio performance could be if you blended 10% commodities, 10% gold, and 2% crypto with HQ’s performance metrics.

Below are the details, but before that, as a quick background: OGN provides prescription therapies globally, focusing on women’s health including contraception and fertility, as well as cardiovascular treatments, primarily supplying drug wholesalers, retailers, hospitals, and government agencies.

2022 Inflation Shock

• OGN stock fell 72.2% from a high of $39.36 on 2 March 2022 to $10.95 on 16 November 2023 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 $23.03 on 26 August 2024 , and currently trades at $7.06

 
It is a good thing to keep in mind how low OGN could go during a downturn. And you should also check how the stock fared when compared with 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.