Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that go unnoticed and are attractive buys, or that offer tempting discounts from their fair value?
– Zacks
One way to find these companies is to look at several key metrics and financial ratios, many of which are crucial in the value stock selection process. let’s say Merck & Co., Inc. MRK stock in this equation and find out if it’s a good fit for value investors right now, or if investors subscribing to this methodology should look elsewhere for the best picks:
P/E ratio
A key metric that value investors always look at is the price-to-earnings ratio, or PE for short. It tells us how much investors are willing to pay for every dollar of profit from a given stock, and it’s easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where that ratio has been in the past; b) how it compares to the industry/sector average; and c) how it compares to the market as a whole.
On this front, Merck & Co. has a year-over-year PE ratio of 12.43, as you can see in the chart below:
Image source: Zacks Investment Research
This level actually compares quite favorably to the market as a whole, as the PE of the S&P 500 sits at around 21.2. If we focus on the long-term PE trend, the current level of Merck & Co.’s PE puts it below its midpoint over the past five years.
Image source: Zacks Investment Research
Additionally, the stock’s PE compares favorably to Zacks Medical’s 12-month PE ratio of 26.03. If nothing else, this indicates that the stock is currently relatively undervalued compared to its peers.
Image source: Zacks Investment Research
We should also point out that Merck & Co. has a forward PE ratio (price to earnings this year) of just 10.5, so it’s fair to say that a slightly more value-oriented trajectory might be at hand. come for Merck & Co. action in the short term too.
P/S ratio
Another key metric to note is the price-to-sales ratio. This approach compares the price of a given stock to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused metrics because it looks at sales, which is much harder to manipulate with accounting tricks than profits.
Right now, Merck & Co. has a P/S ratio of around 5. That’s below the S&P 500 average, which currently sits at 3.9. Also, as we can see in the chart below, this is below the highs for this particular stock in the past few years.
Image source: Zacks Investment Research
On the contrary, MRK is at the lower end of its range over the period from a P/S metric, suggesting some level of undervalued trading, at least by historical standards.
Overall value outlook
Overall, Merck & Co. currently has a Zacks value score of A, which puts it in the top 20% of all stocks we cover from this look. This makes Merck & Co. a solid choice for value investors.
What about the overall stock?
While Merck & Co. may be a good choice for value investors, there are many other factors to consider before investing in this name. In particular, it’s worth noting that the company has a Growth score of F and a Momentum score of C. This gives MRK a Zacks VGM score – or its overall fundamental score – of A. (You can read more on Zacks style scores here >>)
Meanwhile, the company’s recent earnings estimates have been encouraging. The current year has seen five estimates rise in the past sixty days against three declines, while the estimate for the whole of 2021 has seen three revisions up against one fall in the past year. same period.
This had a positive impact on the consensus estimate, as the consensus estimate for the current year increased by 19.7% in the last two months, while the estimate for the full year 2021 improved by 1.4%. You can see the trend of the consensus estimate and the recent price action of the stock in the chart below:
Despite this positive trend, the stock has a Zacks #3 (Hold) rank, indicating in-line performance expectations from the company in the near term.
Conclusion
Merck & Co. is an inspired pick for value investors, as it’s hard to beat its incredible lineup of stats on this front.
However, with a sluggish industry ranking (among the bottom 22% of over 250 industries) and a #3 Zacks ranking, it’s hard to get too excited about this company as a whole. In fact, over the past two years, the Zacks Large Cap Pharmaceuticals industry has clearly underperformed the market as a whole, as you can see below:
Image source: Zacks Investment Research
So, value investors might want to wait for industry trends to turn around with this name first, but once that happens, this stock could be a compelling choice.
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Merck & Co., Inc. (MRK): Free Inventory Analysis Report
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