Merck, the pharmaceutical company behind Keytruda, has been in freefall, down 31% over the past year. If that wasn’t bad enough, they just announced that sales to China were getting cut by 17%, which is about as reassuring to investors as hearing your pilot say, “Uh-oh” mid-flight.

But just when it looked like things couldn’t get any worse, Douglas Baker, an independent director at Merck, decided to drop $1.3 million on the stock… as if he just got an inside tip that the bottom is in. That’s a 1,500% increase in his position (pretty big deal).

So, does Baker see something the rest of us don’t? Or is this just another episode of “executive buys stock to restore investor confidence”? Let’s dig in.

On paper, Merck’s Q4 2024 earnings weren’t bad. In fact, they beat expectations, pulling in $15.62 billion in revenue, which marked a 6.8% year-over-year increase. Earnings per share came in 11 cents above estimates. The problem was that Wall Street didn’t like their 2025 guidance. Merck projected $8.88 to $9.03 EPS, while analysts were expecting $9.13. Revenue guidance came in at $64.1 billion to $65.6 billion, short of the expected $67.07 billion. And unless you have a great narrative to make up for it (like Elon’s futuristic promises with Tesla), you’re dead in the water.

Then there’s the Gardasil mess. Merck paused shipments of the HPV vaccine to China until mid-2025 to let distributors work through excess inventory. While that move makes sense long-term, it nuked Gardasil sales by 17% year-over-year in Q4, dropping revenue to $1.55 billion, which missed analyst estimates of $1.61 billion. For the full year, Gardasil brought in $8.6 billion, down 3% from 2023. Investors took that as a sign of slowing demand, even though Merck insists that growth will rebound in the second half of 2025.

Even with the recent sell-off, Merck is far from a struggling company. They’re still making big money, with an 80.85% gross margin and a 3.71% dividend yield. They have $18.26 billion in trailing twelve-month operating cash flow, a debt-to-equity ratio of 0.79, and an A+ credit rating. The stock now trades at just 11.45x forward earnings, which is well below the industry average of 30.22x, and 35% off its highs.

Merck also has a lot of good news in the works. The company has tripled its Phase 3 drug pipeline in the last three years, with 20 new potential hit treatments in development. That includes WINREVAIR and CAPVAXIVE, two adult pneumococcal vaccines that are already launching in the U.S., as well as MK-1167, an Alzheimer’s treatment in Phase 2 trials. And, of course, there’s Keytruda, Merck’s pride and joy which is also one of the biggest cancer drugs on the market. In 2024 alone, Keytruda brought in $25 billion in revenue, making it one of the highest-grossing drugs in the world.

If Baker thinks now is the time to buy, he’s not the only one. Guggenheim still rates Merck a "Buy," even though they recently trimmed their price target from $122 to $115. That still implies a 36.9% upside from current levels. To back up that case, technical analysis suggests Merck is technically oversold, meaning there’s a strong case that the stock is undervalued at these levels.

For long-term investors, Merck looks like a steal right now. The company is financially strong, Keytruda is still the most profitable cancer drugs, and they’ve got $50 billion worth of future drugs in development. Yes, Gardasil sales took a hit, but that’s temporary. Yes, guidance came in lower than expected, but Merck is still one of the most profitable pharmaceutical companies in the world.

And if a guy like Douglas Baker who reportedly has a net worth of 7 figures is investing over $1 million on Merck at these levels, it might be worth paying attention.

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Stock.News has positions in Merck and Tesla.