Merck (NYSE:MRK) stock has experienced a significant 22% decline this year, sharply underperforming the broader S&P 500 index, which is down only 1%. This downturn can be attributed to several factors: a lowered guidance for 2025 and growing concerns about the long-term growth prospects of its blockbuster drugs, Keytruda and Gardasil.
Specifically, weak sales of Gardasil in China, a critical market for the vaccine, have unsettled investors. Furthermore, Keytruda is nearing the end of its market exclusivity period in 2028, raising questions about future revenue.
Despite these near-term concerns, we believe the negatives might already be priced into Merck’s stock. While challenges exist, the company’s current valuation appears very low.
We’ve reached this conclusion by analyzing Merck’s current valuation against its recent operating performance and its historical and current financial health. Our assessment of Merck across key parameters—Growth, Profitability, Financial Stability, and Downturn Resilience—indicates that the company possesses strong operating performance and financial condition. However, for investors who seek lower volatility than individual stocks, the Trefis High Quality portfolio presents an alternative – having outperformed the S&P 500 and generated returns exceeding 91% since its inception.
How Does MRK Stock’s Valuation Look vs. The S&P 500?
Going by what you pay per dollar of sales or profit, MRK stock looks cheap compared to the broader market.
- Merck has a price-to-sales (P/S) ratio of 3.1 vs. a figure of 3.0 for the S&P 500
- Additionally, the company’s price-to-free cash flow (P/FCF) ratio is 9.4 compared to 20.5 for S&P 500
- And, it has a price-to-earnings (P/E) ratio of 11.3 vs. the benchmark’s 26.4
How Have Merck’s Revenues Grown Over Recent Years?
Merck’s Revenues have grown marginally over recent years.
- Merck has seen its top line grow at an average rate of 5.8% over the last 3 years (vs. increase of 5.5% for S&P 500)
- Its revenues have grown 4.1% from $60 Bil to $64 Bil in the last 12 months (vs. growth of 5.5% for S&P 500)
- Also, its quarterly revenues shrank 1.6% to $16 Bil in the most recent quarter from $15 Bil a year ago (vs. 4.8% improvement for S&P 500)
How Profitable Is Merck?
Merck’s profit margins are much higher than most companies in the Trefis coverage universe.
- Merck’s Operating Income over the last four quarters was $20 Bil, which represents a high Operating Margin of 31.9% (vs. 13.2% for S&P 500)
- Merck’s Operating Cash Flow (OCF) over this period was $21 Bil, pointing to a high OCF Margin of 32.7% (vs. 14.9% for S&P 500)
- For the last four-quarter period, Merck’s Net Income was $17 Bil – indicating a considerably high Net Income Margin of 27.3% (vs. 11.6% for S&P 500)
Does Merck Look Financially Stable?
Merck’s balance sheet looks fine.
- Merck’s Debt figure was $35 Bil at the end of the most recent quarter, while its market capitalization is $196 Bil (as of 5/23/2025). This implies a moderate Debt-to-Equity Ratio of 17.7% (vs. 19.9% for S&P 500). [Note: A low Debt-to-Equity Ratio is desirable]
- Cash (including cash equivalents) makes up $14 Bil of the $117 Bil in Total Assets for Merck. This yields a moderate Cash-to-Assets Ratio of 12.0% (vs. 13.8% for S&P 500)
How Resilient Is MRK Stock During A Downturn?
MRK stock has seen an impact that was slightly better than the benchmark S&P 500 index during some of the recent downturns. Worried about the impact of a market crash on MRK stock? Our dashboard How Low Can Merck Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
Inflation Shock (2022)
- MRK stock fell 20.2% from a high of $90.54 on 4 November 2021 to $72.28 on 7 December 2021, vs. a peak-to-trough decline of 25.4% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 12 May 2022
- Since then, the stock has increased to a high of $132.96 on 24 June 2024 and currently trades at around $78
Covid Pandemic (2020)
- MRK stock fell 27.9% from a high of $92.04 on 2 January 2020 to $66.40 on 23 March 2020, vs. a peak-to-trough decline of 33.9% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 16 May 2022
Global Financial Crisis (2008)
- MRK stock fell 65.5% from a high of $60.77 on 10 December 2007 to $20.99 on 9 March 2009, vs. a peak-to-trough decline of 56.8% for the S&P 500
- The stock fully recovered to its pre-Crisis peak by 5 September 2014
Putting All The Pieces Together: What It Means For MRK Stock
In summary, Merck’s performance across the parameters detailed above are as follows:
• Growth: Neutral
• Profitability: Very Strong
• Financial Stability: Neutral
• Downturn Resilience: Strong
• Overall: Strong
Considering Merck’s very low valuation and its strong performance across key financial and operational parameters, we believe MRK stock is an attractive buy. However, it’s crucial for investors to acknowledge the inherent risks. As seen during the 2008 financial crisis, MRK stock plummeted over 65% from its peak, demonstrating its susceptibility to significant downturns.
Current concerns also include the potential for continued declines in Gardasil sales and a slowdown in Keytruda’s sales growth as it approaches patent expiry. Should these scenarios materialize, MRK stock could experience further declines. While we view Merck’s current valuation as compelling, investors should thoroughly weigh these risks against the potential upside.
While MRK stock looks promising, investing in a single stock can be risky. On the other hand, the Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming the S&P 500 over the last 4-year period. 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.