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Publishing Date: 9/16/2021
What Makes Merck A Potential Buy?
MRK revenue has
grown 6% in the last 12 monthsHowever, its stock has
declined 16% during the same periodAn argument can be made that the market price does not correctly reflect the impact of revenue changeHistory also suggests that Revenue Change has been a dominant factor driving MRK market returns
Change In Merck Stock Price vs Change In Revenue
EPS shown as an additional check to see if change in profitability counteracts the revenue change argument
Stock Prices (Quarter End)
Total Revenues Fx
Earnings Per Share: Basic
A Lookback At History: What Has Been The Key Driving Factor For MRK Stock Returns Since 2017
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2017NowChangeImpact On Stock Price MRK Stock Price $56.27 $71.97 28%
Factors Of Stock Price Change Price To Earnings Ratio (P/E) 63.9 32.7 -49% Negative Net Income $2.4 Bil $5.6 Bil 133% Positive Shares Outstanding 2.7 Bil 2.5 Bil -6.9% Positive
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(1) Latest net income (now) based on last 12 month data; latest shares outstanding (now) based on last quarter data; 2017 stock price based on year-end market price
(2) MRK fiscal year ends on 12/31/2020
(3) In context of net income, 2017 represents FY2017 for MRK, ending on 12/31/2017
Merck (MRK) Stock Price History | 2017 - Now
MRK stock has gained 28% since 2017 endMerck (MRK) Stock Return
MRK Stock Price - Year End
MRK Stock Price - Quarter End
Factors Driving Merck (MRK) Stock Price Change
[1] Price To Earnings Ratio: MRK Price To Earnings Ratio (P/E) Has Decreased -49% Since 2017 EndMerck (MRK) Price Ratios
MRK Price To Earnings Ratio (P/E)
MRK Price to Earnings Ratio (P/E) decreased from 63.9 at the end of 2017 to 32.7 currently, implying -49% change
Notes
Current P/E = Current Market Cap / Last 12 Month Net Income
Historical P/E = Year End Market Cap / Annual Net Income for closest available fiscal year
In context of financial metrics such as Net Income, 2017 represents FY2017 for MRK, ending on 12/31/2017
[2] Earnings Per Share: MRK Earnings Per Share (EPS) Has Increased 150% Since 2017 End
MRK Earnings Per Share (EPS)
MRK EPS has increased from $0.9 in 2017 to $2.2 in the last 12 months, implying 150% change
EPS change is driven by a change in:
(A) Net Income
(B) Shares Outstanding
Calculation with Factors
EPS Change =
(1 + Change in Revenue) x (1 / (1 + Change in Share Count) ) - 1
In context of financial metrics such as Net Income and Shares Outstanding, 2017 represents FY2017 for MRK, ending on 12/31/2017
Factors Driving Merck (MRK) Earnings Per Share (EPS)
(a) Revenue: MRK Revenue Has Increased 21% Since 2017 EndMerck (MRK) Revenue
MRK Revenue
MRK Revenue has increased from $40,122 Mil in 2017 to $48,548 Mil in the last 12 months, implying 21% change
In context of financial metrics such as Revenue, 2017 represents FY2017 for MRK, ending on 12/31/2017
(b) Net Margin: MRK Net Margin Has Increased From 11.5% to 6.0% Since 2017 End
MRK Net Margin
MRK Net Margin has increased from 6.0% in 2017 to 11.5% in the last 12 months
In context of financial metrics such as net margin, 2017 represents FY2017 for MRK, ending on 12/31/2017
(c) Shares outstanding: MRK Shares Outstanding Have Decreased -6.9% Since 2017 End
MRK Shares Outstanding
MRK Shares Outstanding have decreased from 2,720 Mil at the end of 2017 to 2,533 Mil currently, implying -6.9% change
Changes in shares outstanding have an inverse impact on change in RPS growth. An increase in shares outstanding reduces RPS growth and vice versa.
In context of financial metrics such as shares outstanding, 2017 represents FY2017 for MRK, ending on 12/31/2017
How to Interpret
The dominant factor - P/E Ratio or Earnings per share - accounts for what drove the stock price change since the end of 2017.
When P/E Ratio is Dominant Factor
If the dominant factor is the change in P/E ratio then it means there has been a significant change in investor perceptions of future profitability for the company even though recent past financial performance has not reflected the change in perceptions.
P/E ratio increase (multiple expansion) = higher expectations of future profits (typically at a higher margin than before)
P/E ratio decrease (multiple contraction) = lower expectation of future profits (typically at a lower margin than before)
When Earnings per share (EPS) is Dominant Factor
If the dominant factor is the change in EPS then it means the company has performed better or worse than expected - leading to corresponding share price corrections; however, the company's expected margin of profitability in the future has not necessarily changed significantly so there may not be a significant accompanying change in the P/E ratio expectations.
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