Here's Why We Think Zimmer Biomet Holdings (NYSE:ZBH) Is Well Worth Watching

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

Despite being in the age of tech-stock blue-sky investing, many investors still adopt a more traditional strategy; buying shares in profitable companies like Zimmer Biomet Holdings (NYSE:ZBH). Now this is not to say that the company presents the best investment opportunity around, but profitability is a key component to success in business.

Check out our latest analysis for Zimmer Biomet Holdings

Zimmer Biomet Holdings' Improving Profits

Over the last three years, Zimmer Biomet Holdings has grown earnings per share (EPS) at as impressive rate from a relatively low point, resulting in a three year percentage growth rate that isn't particularly indicative of expected future performance. So it would be better to isolate the growth rate over the last year for our analysis. To the delight of shareholders, Zimmer Biomet Holdings' EPS soared from US$1.60 to US$2.42, over the last year. That's a commendable gain of 51%.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. Zimmer Biomet Holdings maintained stable EBIT margins over the last year, all while growing revenue 4.2% to US$7.2b. That's progress.

In the chart below, you can see how the company has grown earnings and revenue, over time. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Zimmer Biomet Holdings' forecast profits?

Are Zimmer Biomet Holdings Insiders Aligned With All Shareholders?

It's said that there's no smoke without fire. For investors, insider buying is often the smoke that indicates which stocks could set the market alight. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

It's pleasing to note that insiders spent US$836k buying Zimmer Biomet Holdings shares, over the last year, without reporting any share sales whatsoever. The shareholders within the general public should find themselves expectant and certainly hopeful, that this large outlay signals prescient optimism for the business. We also note that it was the Independent Director, Robert Hagemann, who made the biggest single acquisition, paying US$233k for shares at about US$116 each.

The good news, alongside the insider buying, for Zimmer Biomet Holdings bulls is that insiders (collectively) have a meaningful investment in the stock. Indeed, they hold US$25m worth of its stock. That's a lot of money, and no small incentive to work hard. Despite being just 0.1% of the company, the value of that investment is enough to show insiders have plenty riding on the venture.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. The cherry on top is that the CEO, Ivan Tornos is paid comparatively modestly to CEOs at similar sized companies. Our analysis has discovered that the median total compensation for the CEOs of companies like Zimmer Biomet Holdings, with market caps over US$8.0b, is about US$12m.

Zimmer Biomet Holdings' CEO took home a total compensation package worth US$6.4m in the year leading up to December 2022. That is actually below the median for CEO's of similarly sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Zimmer Biomet Holdings Worth Keeping An Eye On?

For growth investors, Zimmer Biomet Holdings' raw rate of earnings growth is a beacon in the night. On top of that, insiders own a significant stake in the company and have been buying more shares. Astute investors will want to keep this stock on watch. Don't forget that there may still be risks. For instance, we've identified 2 warning signs for Zimmer Biomet Holdings that you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Zimmer Biomet Holdings, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.