The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Zimmer Biomet Holdings, Inc. (NYSE:ZBH) have tasted that bitter downside in the last year, as the share price dropped 31%. That falls noticeably short of the market decline of around 9.0%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 1.2% in three years. More recently, the share price has dropped a further 8.7% in a month. But this could be related to poor market conditions -- stocks are down 9.6% in the same time.
With the stock having lost 4.4% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.
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. 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.
Unfortunately Zimmer Biomet Holdings reported an EPS drop of 50% for the last year. The share price fall of 31% isn't as bad as the reduction in earnings per share. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult. With a P/E ratio of 85.76, it's fair to say the market sees an EPS rebound on the cards.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how Zimmer Biomet Holdings has grown profits over the years, but the future is more important for shareholders. Take a more thorough look at Zimmer Biomet Holdings' financial health with this free report on its balance sheet.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. 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. We note that for Zimmer Biomet Holdings the TSR over the last 1 year was -29%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!
A Different Perspective
We regret to report that Zimmer Biomet Holdings shareholders are down 29% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 9.0%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn't be so upset, since they would have made 0.9%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 3 warning signs we've spotted with Zimmer Biomet Holdings .
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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.