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Market is not liking Zimmer Biomet Holdings' (NYSE:ZBH) earnings decline as stock retreats 5.1% this week

·3 min read

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Zimmer Biomet Holdings, Inc. (NYSE:ZBH) have tasted that bitter downside in the last year, as the share price dropped 28%. That contrasts poorly with the market decline of 15%. Taking the longer term view, the stock fell 23% over the last three years. Furthermore, it's down 10% in about a quarter. That's not much fun for holders. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Since Zimmer Biomet Holdings has shed US$1.2b from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Zimmer Biomet Holdings

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.

Unhappily, Zimmer Biomet Holdings had to report a 68% decline in EPS over the last year. This fall in the EPS is significantly worse than the 28% the share price fall. It may have been that the weak EPS was not as bad as some had feared. Indeed, with a P/E ratio of 77.60 there is obviously some real optimism that earnings will bounce back.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
earnings-per-share-growth

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. It might be well worthwhile taking a look at our free report on how its financial position has changed over time.

What About Dividends?

It is important to consider the total shareholder return, as well as the share price return, for any given stock. Whereas the share price return only reflects the change in the share price, the TSR includes the value of dividends (assuming they were reinvested) and the benefit of any discounted capital raising or spin-off. 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 -26%, which is better than the share price return mentioned above. The dividends paid by the company have thusly boosted the total shareholder return.

A Different Perspective

We regret to report that Zimmer Biomet Holdings shareholders are down 26% for the year (even including dividends). Unfortunately, that's worse than the broader market decline of 15%. 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 0.1%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 instance, we've identified 3 warning signs for Zimmer Biomet Holdings that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.

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