Home Stock Should you buy Merck shares as it files with FDA for emergency use of its covid pill?

Should you buy Merck shares as it files with FDA for emergency use of its covid pill?


On Monday, Merck & Co Inc. (NYSE:MRK) submitted an Emergency Use Authorisation application to the US FDA for its molnupiravir drug for emergency use or marketing authorisation in the coming months.

Merck’s submission is based on recent study results that showed its drug reduced covid hospitalisations and death by 50% last week. The stock spiked following the reveal but has since pulled back to trim the gains. 

Merck shares edged slightly higher on Monday following its application. It expects to produce 10 million courses of treatment by the end of 2021, with more expected in 2022. The company has been producing the drug at risk in anticipation of a potential regulatory authorisation and approval. 

It has already inked a deal with the US government to supply 1.7 million courses of molnupiravir.

Should you bet on MRK’s discount valuation?

From an investment perspective, Merck shares trade at an attractive forward P/E ratio of 12.10, making the stock a compelling option for value investors. Moreover, analysts forecast the Pharma company’s earnings per share to increase by 17.44% next year and at an average annual rate of 12.74% over the next five years.

Therefore, given the company’s Emergency Use Authorisation application to the FDA to use its molnupiravir drug on covid-19 patients, it could be the perfect time to buy the stock ahead of its exciting growth prospects.

Source – TradingView

Is a triangle breakout incoming?

Technically, Merck seems to be trading within a bearish triangle formation in the hourly chart. As a result, the stock has pulled back, avoiding ascending into overbought conditions. However, the stock seems far from reaching oversold conditions of the 14-hour RSI and trades several levels above the 100-hour moving average.

Therefore, investors could target potential pullback profits at approximately $78.65, or lower at $76.59. On the other hand, if the stock completes an upward breakout, it could find resistance at $82.66, or higher at $84.56.

Wait for a full pullback?

In summary, although Merck shares still trade at a compelling valuation multiple, the current pullback seems far from over.

Therefore, it may be best to wait for the pullback to complete before buying the stock.

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