Stock Analysis | Merck Outlook - Navigating Weak Technicals and Strong Fundamentals

1. Market Snapshot: Merck Faces Weak Technicals and a Falling Price Trend

The stock of Merck (MRK) is currently in a falling price trend (-3.04%), with technical indicators suggesting it's in a weak state and that the risk of further decline is high. Our internal diagnostic score (0-10) for technicals is 2.84, which means it is not recommended to enter a long position at this time.

2. News Highlights: Regulatory and Policy Developments Pose Risks

• New FDA Leadership Could Raise The Bar For Drug Approvals (2025-05-09): The new FDA leadership may increase scrutiny and delay approvals for new therapies, including gene therapies. This could introduce greater uncertainty in Merck's development timelines and stock price volatility.
• Pharma is facing its nightmare scenario (2025-05-13): With President Trump’s executive order to lower drug prices, the pharma industry—Merck included—is facing a worst-case scenario in terms of profit potential and market stability.

3. Analyst Views & Fundamentals: Mixed Ratings, Strong Fundamentals

Analysts remain neutral on Merck. The simple average rating is 3.00, and the performance-weighted rating is 3.46. These ratings suggest a moderate outlook, though ratings are not aligned (Wells Fargo and Morgan Stanley have differing views in the past 20 days).

Notably, the price trend (-3.04%) is moving against the neutral expectations of analysts, indicating a potential mismatch between fundamentals and market sentiment.

Key Fundamental Metrics

• Annualized Return on Equity (ROE): 39.90% (Score: 8.9) – Merck is highly efficient in generating returns on equity.
• Net Profit Margin (NPM): 28.01% (Score: 8.9) – Profitability is robust.
• Cash Flow from Operations (CFOA): 2.80% (Score: 8.9) – Strong operating cash flow supports long-term stability.
• Price to Sales (PS): 13.81 (Score: 7.5) – Suggests the stock is reasonably priced based on revenue.
• Inventory Turnover Days: 163.98 days (Score: 5.5) – Slow turnover may indicate inefficiencies or capital tied up in inventory.

Overall, the fundamental score is 8.9 – highly positive – despite some inefficiencies in inventory and tax-related concerns.

4. Money-Flow Trends: Mixed Signals Across Investor Groups

Money flows are mixed, with big money moving out while smaller investors are slightly bullish:

• Large and Extra-large investor flows (both negative) indicate caution from big players.
• Small investor inflow ratio: 50.05% suggests a moderate retail interest, while medium and large flows are also negative.

The fund flow score is 7.69, meaning the overall flow is "good" due to a balanced mix of inflows and outflows.

5. Key Technical Signals: Bearish Momentum Continues

Technical indicators paint a weak picture for Merck. The internal diagnostic score is 2.84, suggesting avoidance for now. Here are the key signals:

• MACD Golden Cross (Score: 3.58) – Indicates a neutral to bearish signal. Historically, it has had a 50% win rate and an average return of -0.18%.
• MACD Death Cross (Score: 5.79) – Neutral in impact, but historically has led to 0.28% average returns and a 58.33% win rate.
• WR (Williams %R) Oversold (Score: 1) – This is a highly bearish signal. Historically, it has led to a 37.7% win rate and an average return of -0.86%.
• Bullish Engulfing (Score: 1) – Suggests a failed bullish attempt. Historically, this pattern has had a 25% win rate and an average return of -0.96%.

Recent chart patterns include:

• 2025-09-05: Bullish Engulfing – A failed bullish signal.
• 2025-09-02: MACD Golden Cross – A bearish continuation.
• 2025-08-28: WR Oversold – Strong bearish sign.
• 2025-08-29: MACD Death Cross – Confirmed bearish momentum.

With 3 bearish and 0 bullish indicators, the momentum is clearly bearish. Technicals are not supportive for new long positions.

6. Conclusion: Hold Off for Now, Watch Earnings

Merck’s fundamentals are strong, with an 8.9 internal score, but its technical indicators and fund flow patterns are bearish (technical score: 2.84). Analyst ratings remain neutral but inconsistent, and recent regulatory developments could weigh on the stock’s performance.

Actionable takeaway: Consider holding off on new positions and monitor earnings or regulatory developments. A pull-back may be on the horizon, but current technicals do not support aggressive entry.