If you buy and hold a stock for many years, you’d hope to be making a profit. Better yet, you’d like to see the share price move up more than the market average. But Zimmer Biomet Holdings, Inc. (NYSE:ZBH) has fallen short of that second goal, with a share price rise of 36% over five years, which is below the market return. Looking at the last year alone, the stock is up 6.4%.
In his essay The Superinvestors of Graham-and-Doddsville Warren Buffett described how share prices do not always rationally reflect the value of a business. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
During five years of share price growth, Zimmer Biomet Holdings actually saw its EPS drop 2.1% per year. This was, in part, due to extraordinary items impacting earning in the last twelve months.
By glancing at these numbers, we’d posit that the decline in earnings per share is not representative of how the business has changed over the years. Since the change in EPS doesn’t seem to correlate with the change in share price, it’s worth taking a look at other metrics.
The modest 0.7% dividend yield is unlikely to be propping up the share price. On the other hand, Zimmer Biomet Holdings’s revenue is growing nicely, at a compound rate of 12% over the last five years. It’s quite possible that management are prioritizing revenue growth over EPS growth at the moment.
The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).
We like that insiders have been buying shares in the last twelve months. Having said that, most people consider earnings and revenue growth trends to be a more meaningful guide to the business. So it makes a lot of sense to check out what analysts think Zimmer Biomet Holdings will earn in the future (free profit forecasts).
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. In the case of Zimmer Biomet Holdings, it has a TSR of 42% for the last 5 years. That exceeds its share price return that we previously mentioned. This is largely a result of its dividend payments!
A Different Perspective
Zimmer Biomet Holdings shareholders gained a total return of 7.3% during the year. But that return falls short of the market. On the bright side, that’s still a gain, and it’s actually better than the average return of 7.3% over half a decade This suggests the company might be improving over time. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Zimmer Biomet Holdings by clicking this link.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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