Stock Analysis

Introducing Zimmer Biomet Holdings (NYSE:ZBH), A Stock That Climbed 57% In The Last Five Years

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NYSE:ZBH
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When you buy and hold a stock for the long term, you definitely want it to provide a positive return. Better yet, you'd like to see the share price move up more than the market average. Unfortunately for shareholders, while the Zimmer Biomet Holdings, Inc. (NYSE:ZBH) share price is up 57% in the last five years, that's less than the market return. Zooming in, the stock is up a respectable 7.0% in the last year.

Check out our latest analysis for Zimmer Biomet Holdings

While the efficient markets hypothesis continues to be taught by some, it has been proven that markets are over-reactive dynamic systems, and investors are not always rational. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).

Zimmer Biomet Holdings has made a profit in the past. However, it made a loss in the last twelve months, suggesting profit may be an unreliable metric at this stage. So we might find other metrics can better explain the share price movements.

We doubt the modest 0.6% dividend yield is attracting many buyers to the stock. The revenue growth of 3.0% per year hardly seems impressive. So it seems one might have to take closer look at earnings and revenue trends to see how they might influence the share price.

The company's revenue and earnings (over time) are depicted in the image below (click to see the exact numbers).

earnings-and-revenue-growth
NYSE:ZBH Earnings and Revenue Growth January 20th 2021

We consider it positive that insiders have made significant purchases in the last year. Even so, future earnings will be far more important to whether current shareholders make money. 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. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. In the case of Zimmer Biomet Holdings, it has a TSR of 64% for the last 5 years. That exceeds its share price return that we previously mentioned. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

Zimmer Biomet Holdings shareholders gained a total return of 7.8% during the year. Unfortunately this falls short of the market return. On the bright side, the longer term returns (running at about 10% a year, over half a decade) look better. Maybe the share price is just taking a breather while the business executes on its growth strategy. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 2 warning signs for Zimmer Biomet Holdings (1 shouldn't be ignored!) that you should be aware of before investing here.

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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What are the risks and opportunities for Zimmer Biomet Holdings?

Zimmer Biomet Holdings, Inc., together with its subsidiaries, operates in the musculoskeletal healthcare business in the Americas, Europe, the Middle East, Africa, and the Asia Pacific.

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Rewards

  • Earnings are forecast to grow 21.48% per year

Risks

  • Profit margins (4.1%) are lower than last year (11.7%)

  • Large one-off items impacting financial results

  • Has a high level of debt

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Zimmer Biomet Holdings

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