FMC Stock Is Crashing -- Here's Why

FMC (NYSE: FMC) stock is falling from the sky. After earnings were announced last week, shares plummeted by more than 40%. But that's just the tip of the iceberg. Since 2023, shares have lost nearly 90% of their value.

What exactly is going on, and is this your chance to buy low?

Three things going wrong with FMC right now

There isn't just one culprit to FMC's latest demise. The nearly 90% reduction in value since 2023 has stemmed from multiple sources. But there are a few primary concerns that investors should be familiar with.

FMC is considered an agricultural sciences company, which basically means that it supplies farmers with things like insecticides, herbicides, fungicides, and other crop protection solutions. The company generates revenue from all over the world, with an active research and development arm focused on creating new solutions and technologies to help farmers improve yields and reduce crop loss. In other words, FMC's goal is to help farmers make more money.

The most obvious reason FMC stock is tanking is poor financials. Annual sales have moved from nearly $6 billion in 2023 to just above $4 billion today. And while its gross profit margin hasn't declined nearly as much, deteriorating revenue has caused its net profit margin to hover close to 0%. This past quarter, the company posted a $569 million loss compared to a $66 million profit this time last year. Next quarter, the company expects revenue to fall by another 4% year over year, resulting in negative free cash flow of $100 million for 2025. Accordingly, the market has dramatically reduced the company's price-to-sales ratio from roughly 3 in 2023 to less than 0.5 today.

FMC PS Ratio data by YCharts

Poor financials, of course, are just a reflection of a struggling business model. What exactly is going wrong operationally for FMC? A few obvious culprits are to blame. FMC doesn't typically sell its products directly to farmers. Instead, it sells to distributors and other vendors, which in turn sell to farmers. Due to supply chain disruptions, these vendors built up too much inventory, forcing them to reduce orders. Encouragingly, however, FMC believes that real-world applications of their products by farmers has held steady, suggesting that this is simply a short-term headwind that needs unwinding.

But there are other issues, too. This oversupply has caused the company to lower prices in order to stoke revenue growth. Again, this may be a short-term issue that will be resolved once oversupply is removed as an overhang. But competition in the space is rising, too, especially internationally, where FMC has dealt with foreign exchange headwinds that have lowered earnings when reported in U.S. dollars. Competition is especially fierce in regions where demand headwinds exist, such as drought-ridden Brazil and financially pressured farmers in Europe.

Image source: Getty Images.

So, poor financials have been driven by temporary industry oversupply and weaker-than-expected international demand. But there's one other factor that led to the company's 40% drop this week: a massive dividend cut. In response to crumbling financials, management opted to slash the quarterly dividend from $0.48 per share to just $0.08 per share. This spooked investors, with analysts wondering how sustainable the company's $4.5 billion debt load is. Keep in mind that the company is now free-cash-flow-negative, with a market cap of just $2 billion.

Time to buy FMC stock on the cheap?

I'm tempted to buy shares of FMC on the dip. But investors should understand that this is a very complicated story. FMC recently announced that it would sell its India business, which is more capital-intensive and has faced more severe oversupply issues. Meanwhile, it's not clear how long industry overstocking issues will be a drag on revenue growth. In other words, uncertainty for FMC is very high right now, especially in regard to its ability to service its debt load.

Shares look cheap based on normalized conditions. But how long it will take to return to normal is unknown. If you're interested in taking a position, it may be wise to start slow, adding to your position on any future weakness. Expect volatility, as well as more negative surprises.

Ryan Vanzo has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.