Dow Inc.: A Tale of Short-Term Struggles and Long-Term Promise in the Industrial Chemicals Sector

In the volatile world of industrial chemicals, Dow Inc. (DOW) has found itself in a familiar position: underperforming the broader market while laying the groundwork for a potential long-term rebound. As of September 2025, the S&P 500 has outpaced DOW in both nominal and inflation-adjusted returns, with the index rising 3.5% month-over-month compared to DOW's 1.9% gain. In real terms, the S&P 500's 3.2% return dwarfs DOW's 1.6%, according to a S&P and Dow since 2000 update. Over the longer term, the S&P 500's 131% real growth since the 2000 peak far exceeds DOW's 109%, according to the same update. This divergence raises a critical question: Is DOW's underperformance a reflection of its fundamentals, or does it mask a mispricing of its long-term strategic potential?

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Short-Term Pressures: A Perfect Storm of Costs and Tariffs

Dow's recent struggles are not for lack of effort. The company has faced a perfect storm of rising raw material costs, regulatory uncertainty, and geopolitical headwinds. In Q1 2025, DOW reported a net loss of $307 million in its Dow Q1 2025 results, driven by soaring costs of sales ($9.8 billion) and restructuring charges from cutting 1,500 jobs. By Q2, the losses deepened, with a $0.42-per-share loss and a 7% year-over-year revenue decline, the report said. U.S. tariffs, including 145% duties on Chinese goods, have further complicated operations, forcing the company to delay projects like its Alberta-based Path2Zero initiative, the same digest noted. These pressures have created what DOW's CEO described as a "lower-for-longer earnings environment," prompting management to implement a 50% dividend cut and $1 billion in cost-saving measures stated in that Q1 filing.

Long-Term Momentum: Sustainability and Strategic Reinvention

Yet, beneath the short-term noise, DOW is executing a bold reinvention. The company has positioned itself at the forefront of the sustainability transition, with 89% of its R&D pipeline focused on climate protection, circular economy solutions, and safer materials, according to Dow 2025 goals. Innovations like EcoSense™ 2470 Surfactant and REVOLOOP™ Recycled Plastics Resins are not just buzzwords-they are tangible steps toward reducing greenhouse gas emissions and advancing circularity, as the company describes on its sustainability pages. Collaborations with Mura Technology and Valoregen on chemical recycling projects underscore DOW's commitment to turning waste into value.

DOW's strategic playbook also includes aggressive cost optimization and geographic expansion. The company is idling high-cost European assets, such as its ethylene cracker in Germany and siloxanes plant in Wales, while accelerating automation and digital transformation, the Q1 disclosure explained. Meanwhile, its focus on high-growth regions like Asia-Pacific aligns with rising demand for packaging and infrastructure materials, per the company's stated objectives. These moves suggest a company preparing for a future where sustainability and operational efficiency are non-negotiables.

Valuation: A Discounted Price for a Premium Play?

DOW's valuation metrics tell a story of undervaluation. With an EV/EBITDA of 7.75–8.11, according to DOW financial ratios, the stock trades at a significant discount to the industrial chemicals sector's average of 9.8x–14.03x. Its price-to-book ratio of 0.90, according to FinanceCharts, further highlights the gap between market perception and asset value. Analysts have set a $28.07 price target, implying a 28% upside from current levels, though the consensus remains a cautious "Hold," based on the financial-ratios data. This disconnect between fundamentals and valuation is striking, especially given DOW's $765 million R&D investment in 2023 and its 23.15% projected EPS growth over five years shown in those ratio tables.

The Case for Long-Term Investors

For long-term investors, the key question is whether DOW's short-term challenges are temporary or structural. The industrial chemicals sector itself is not without risks: overcapacity in China, high energy costs in Europe, and geopolitical volatility could persist. However, DOW's strategic focus on sustainability, cost discipline, and emerging markets positions it to capitalize on long-term trends. The company's $6 billion in projected cash support and $1 billion in cost savings, disclosed in the Q1 results, provide a buffer to navigate near-term turbulence.

Moreover, DOW's undervaluation relative to peers like LyondellBasell (LYB) and Westlake (WLK), as reflected in the financial ratios, suggests the market is underappreciating its transformation. If the company can execute its sustainability goals and operational improvements, the current discount could represent an opportunity for patient investors.

Conclusion: A Calculated Bet on Resilience

Dow Inc. is a study in contrasts: a company grappling with immediate headwinds while building a foundation for long-term resilience. Its underperformance relative to the S&P 500 is understandable given the short-term pressures, but the valuation metrics and strategic initiatives suggest a compelling case for those willing to look beyond the noise. As the industrial chemicals sector navigates a 1.9% output growth outlook for 2025–2030, per the sector data, DOW's ability to adapt and innovate could determine whether its current discount becomes a bargain or a trap. For now, the data points to a stock that is undervalued but not without risk-a classic Sorkinian dilemma for the discerning investor.