The Returns At Zimmer Biomet Holdings (NYSE:ZBH) Aren't Growing

What are the early trends we should look for to identify a stock that could multiply in value over the long term? In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. This shows us that it's a compounding machine, able to continually reinvest its earnings back into the business and generate higher returns. However, after investigating Zimmer Biomet Holdings (NYSE:ZBH), we don't think it's current trends fit the mold of a multi-bagger.

Understanding Return On Capital Employed (ROCE)

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. Analysts use this formula to calculate it for Zimmer Biomet Holdings:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.075 = US$1.4b ÷ (US$21b - US$2.1b) (Based on the trailing twelve months to September 2023).

Therefore, Zimmer Biomet Holdings has an ROCE of 7.5%. On its own, that's a low figure but it's around the 9.3% average generated by the Medical Equipment industry.

View our latest analysis for Zimmer Biomet Holdings

Above you can see how the current ROCE for Zimmer Biomet Holdings compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Zimmer Biomet Holdings.

So How Is Zimmer Biomet Holdings' ROCE Trending?

There hasn't been much to report for Zimmer Biomet Holdings' returns and its level of capital employed because both metrics have been steady for the past five years. It's not uncommon to see this when looking at a mature and stable business that isn't re-investing its earnings because it has likely passed that phase of the business cycle. With that in mind, unless investment picks up again in the future, we wouldn't expect Zimmer Biomet Holdings to be a multi-bagger going forward.

In Conclusion...

We can conclude that in regards to Zimmer Biomet Holdings' returns on capital employed and the trends, there isn't much change to report on. And with the stock having returned a mere 25% in the last five years to shareholders, you could argue that they're aware of these lackluster trends. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

If you'd like to know about the risks facing Zimmer Biomet Holdings, we've discovered 2 warning signs that you should be aware of.

While Zimmer Biomet Holdings isn't earning the highest return, check out this free list of companies that are earning high returns on equity with solid balance sheets.

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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.