CANADA – 2025/11/05: In this photo illustration, the Zimmer Biomet logo is seen displayed on a smartphone screen. (Photo Illustration by Thomas Fuller/SOPA Images/LightRocket via Getty Images)
SOPA Images/LightRocket via Getty Images
Zimmer Biomet (ZBH) could be a strong choice for your investment portfolio, due to its high cash yield, solid fundamentals, and discounted valuation. Companies like this have the capacity to leverage cash for additional revenue growth or to reward their shareholders through dividends or buybacks. Either of these strategies enhances their appeal in the market.
What Is Happening With ZBH
ZBH may be down -14% this year, yet it is currently trading at a P/S (Price-to-Sales) ratio that presents a significant discount relative to its 3-month and 2-year peaks, and also falls below its 3-year average.
The stock might not be reflecting it yet, but here’s what’s going positively for the company. Although third-quarter revenue slightly fell short of expectations and the full-year organic constant currency growth guidance was revised due to international challenges, U.S. organic revenue saw a growth of 5.6%, driven by the robust adoption of key new products and robotic placements. Recent acquisitions, including Monogram Technologies and Paragon 28, enhance its portfolio in sectors like robotics and foot & ankle. New product approvals, such as the iodine-treated hip and ROSA Knee with OptimiZe, alongside favorable pricing trends, highlight ongoing innovation and market engagement.
ZBH Has Good Fundamentals
- Strong Cash Yield: Very few stocks provide a free cash flow yield of 7.9%, but Zimmer Biomet does.
- Robust Margin: Operating margin over the last 12 months stood at 18.7%.
- Growth: The revenue growth over the last 12 months was 5.5% – relatively low growth, but this selection focuses on high yield and margin.
- Valuation: ZBH stock is currently trading 31% below its 2-year high, 14% below its 1-month high, and at a P/S lower than its 3-year average.
Below is a brief comparison of ZBH fundamentals with S&P medians.
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*LTM: Last Twelve Months
But What Is The Risk Involved?
While ZBH stock may present a compelling investment prospect, it’s prudent to be aware of a stock’s historical performance during downturns. ZBH is not immune to significant declines either. It plummeted 65% during the Global Financial Crisis and nearly 50% amid the Covid pandemic. The correction in 2018 resulted in a more moderate, yet still painful, 26% fall. Even last year’s inflation surge caused it to drop over 40%. Strong fundamentals are important, but during volatility, even robust stocks can experience severe impacts. However, the risk is not confined to major market crashes. Stocks can decline even when the markets are performing well – consider events such as earnings reports, corporate updates, or changes in outlook. Read ZBH Dip Buyer Analyses to understand how the stock has rebounded from sharp declines in the past.
For further details and our perspective, see Buy or Sell ZBH Stock.
Stocks Like ZBH
Unsure about taking action on ZBH? Consider these alternatives:
We selected these stocks based on the following criteria:
- Market cap greater than $2 billion
- Experienced a dip last month & significantly below the 2-year high
- Current P/S lower than the average over the past few years
- Strong operating margin with no significant margin collapses
- High free cash flow yield
A portfolio of stocks adhering to the aforementioned criteria would have performed as follows since 12/31/2016:
- Average forward returns of 10.4% and 20.4% over 6-month and 12-month periods, respectively
- A win rate (the percentage of selections yielding positive returns) of approximately 74% over a 12-month duration
- Consistent strategy across various market cycles
Portfolios Over Individual Stock Picks
Individual stocks may soar or decline, but one factor remains critical: maintaining investment. An appropriate portfolio can facilitate staying invested, capturing upside potential, and reducing the downside risk associated with any single stock.
The Trefis High Quality (HQ) Portfolio, comprising 30 stocks, has a proven record of consistently outperforming its benchmark, which includes all three indices – the S&P 500, S&P Mid-Cap, and the Russell 2000. What accounts for this? As a collective, HQ Portfolio stocks have yielded higher returns with reduced risk compared to the benchmark index; presenting less volatility, as shown in HQ Portfolio performance metrics.