In this article I am going to analyze Merck‘s stock based in its earning for the last 6 years and its (P/E) ratio, to see how much its stock will worth in 2027.
First, I need to go back to the company financial statement and see how was its EPS doing. As shown below in the graph:
Merck EPS increased from 1.05$ from year 2017 until it reached 6.01$ in 2022, with drop in year 2021 where it was 2.84$. However, the company managed to go back to track in year 2022 with 6.01$, and maintain an up trend for its EPS. Therefor, it is fair to say that Merck has 41.7% growth rate of its EPS.
Now that we have the growth rate of the Merck EPS in the last five years, we are going to use this growth rate to estimate what will its EPS be in 2027 ,which is five years from now by applying the following formula:
- PV = Merck EPS in year 2022 = 6.01 $
- i = growth rate of Merck EPS estimated above = 41.7%
- n = years of investment = 5 years in 2027
By substitute the numbers estimated early in the above formula, I end up with Merck EPS in year 2027 equal to 34.3 $.
Now, I have to see what was (P/E) ratio that Merck did have in the last six years, which as shown below:
Now we can estimate two scenarios for Merck stock price which is Bull market and the bear market.
For Bull market , I am going to take the highest (P/E) ratio which was 51.76 in year 2017, to see what will be the price of Merck stock in 2027:
Bull market 3M Co. Stock price in 2027= (50.76)*(34.3) = 1,741.1$
For Bear market, I will take the lowest (P/E) ratio which was 14.24 in year 2022, to see what will be the price of Merck stock in 2027.
Bear market #M Co. Stock price in 2027=(14.24)*(34.3)=488.43$.
As of writing this article, Merck stock price is 112.43$ which is below the bear market scenario by 334% which is really good margin of safety. Therefore, investing 10,000$ in Merck stock, it will worth 39,885$ at least in 2027, that means this stock is going to increase your capital by almost 400%.