Despite its impressive fundamentals,MERCK & CO. INC. (NYSE:MRK) remains undervalued.

Our stock screening tool has identified MERCK & CO. INC. (NYSE:MRK) as an undervalued gem with strong fundamentals. MRK boasts decent financial health and profitability while maintaining an attractive price point. We'll break it down further.

What does the Valuation looks like for MRK

ChartMill employs its own Valuation Rating system for all stocks. This score, ranging from 0 to 10, is determined by evaluating different valuation factors, including price to earnings and free cash flow, both in absolute terms and relative to the market and industry. MRK has earned a 9 for valuation:

• The Price/Earnings ratio is 10.62, which indicates a very decent valuation of MRK.
• Compared to the rest of the industry, the Price/Earnings ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 89.90% of the companies listed in the same industry.
• The average S&P500 Price/Earnings ratio is at 28.78. MRK is valued rather cheaply when compared to this.
• With a Price/Forward Earnings ratio of 8.29, the valuation of MRK can be described as very reasonable.
• Based on the Price/Forward Earnings ratio, MRK is valued cheaply inside the industry as 90.91% of the companies are valued more expensively.
• Compared to an average S&P500 Price/Forward Earnings ratio of 21.32, MRK is valued rather cheaply.
• Compared to the rest of the industry, the Enterprise Value to EBITDA ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 85.86% of the companies listed in the same industry.
• Compared to the rest of the industry, the Price/Free Cash Flow ratio of MRK indicates a rather cheap valuation: MRK is cheaper than 89.39% of the companies listed in the same industry.
• The low PEG Ratio(NY), which compensates the Price/Earnings for growth, indicates a rather cheap valuation of the company.
• MRK has an outstanding profitability rating, which may justify a higher PE ratio.
• MRK's earnings are expected to grow with 13.30% in the coming years. This may justify a more expensive valuation.

Profitability Examination for MRK

Discover ChartMill's exclusive Profitability Rating, a proprietary metric that assesses stocks on a scale of 0 to 10. It takes into consideration various profitability ratios and margins, both in absolute terms and relative to industry peers. Notably, MRK has achieved a 8:

• Looking at the Return On Assets, with a value of 14.62%, MRK belongs to the top of the industry, outperforming 96.46% of the companies in the same industry.
• MRK has a better Return On Equity (36.96%) than 96.46% of its industry peers.
• MRK has a better Return On Invested Capital (19.77%) than 93.94% of its industry peers.
• MRK has a Profit Margin of 26.68%. This is amongst the best in the industry. MRK outperforms 95.96% of its industry peers.
• MRK's Operating Margin of 34.59% is amongst the best of the industry. MRK outperforms 95.45% of its industry peers.
• In the last couple of years the Operating Margin of MRK has grown nicely.
• The Gross Margin of MRK (78.19%) is better than 84.85% of its industry peers.
• MRK's Gross Margin has improved in the last couple of years.

Health Assessment of MRK

ChartMill employs a unique Health Rating system for all stocks. This rating, ranging from 0 to 10, is determined by analyzing various liquidity and solvency ratios. For MRK, the assigned 7 for health provides valuable insights:

• An Altman-Z score of 3.80 indicates that MRK is not in any danger for bankruptcy at the moment.
• MRK has a Altman-Z score of 3.80. This is in the better half of the industry: MRK outperforms 78.79% of its industry peers.
• The Debt to FCF ratio of MRK is 2.05, which is a good value as it means it would take MRK, 2.05 years of fcf income to pay off all of its debts.
• The Debt to FCF ratio of MRK (2.05) is better than 92.93% of its industry peers.
• Although MRK does not score too well on debt/equity it has very limited outstanding debt, which is well covered by the FCF. We will not put too much weight on the debt/equity number as it may be because of low equity, which could be a consequence of a share buyback program for instance. This needs to be investigated.
• MRK does not score too well on the current and quick ratio evaluation. However, as it has excellent solvency and profitability, these ratios do not necessarly indicate liquidity issues and need to be evaluated against the specifics of the business.

Analyzing Growth Metrics

ChartMill assigns a proprietary Growth Rating to each stock. The score is computed by evaluating various growth aspects, like EPS and revenue growth. We take into account the history as well as the estimated future numbers. MRK was assigned a score of 5 for growth:

• The Earnings Per Share has grown by an impressive 258.99% over the past year.
• Measured over the past years, MRK shows a quite strong growth in Earnings Per Share. The EPS has been growing by 8.04% on average per year.
• Measured over the past years, MRK shows a quite strong growth in Revenue. The Revenue has been growing by 10.40% on average per year.

More Decent Value stocks can be found in our Decent Value screener.

Check the latest full fundamental report of MRK for a complete fundamental analysis.

Keep in mind

Important Note: The content of this article is not intended as trading advice. It is essential to perform your own analysis and exercise caution when making trading decisions. The article presents observations created by automated analysis but does not guarantee any trading or investment outcomes. Always trade responsibly and make independent judgments.