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Zimmer Biomet Holdings, Inc.'s (NYSE:ZBH) Fundamentals Look Pretty Strong: Could The Market Be Wrong About The Stock?

Simply Wall St · 3d ago

With its stock down 5.8% over the past three months, it is easy to disregard Zimmer Biomet Holdings (NYSE:ZBH). However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Specifically, we decided to study Zimmer Biomet Holdings' ROE in this article.

Return on equity or ROE is an important factor to be considered by a shareholder because it tells them how effectively their capital is being reinvested. Put another way, it reveals the company's success at turning shareholder investments into profits.

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How To Calculate Return On Equity?

The formula for ROE is:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Zimmer Biomet Holdings is:

6.3% = US$807m ÷ US$13b (Based on the trailing twelve months to September 2025).

The 'return' is the amount earned after tax over the last twelve months. Another way to think of that is that for every $1 worth of equity, the company was able to earn $0.06 in profit.

See our latest analysis for Zimmer Biomet Holdings

What Is The Relationship Between ROE And Earnings Growth?

So far, we've learned that ROE is a measure of a company's profitability. Depending on how much of these profits the company reinvests or "retains", and how effectively it does so, we are then able to assess a company’s earnings growth potential. Generally speaking, other things being equal, firms with a high return on equity and profit retention, have a higher growth rate than firms that don’t share these attributes.

Zimmer Biomet Holdings' Earnings Growth And 6.3% ROE

On the face of it, Zimmer Biomet Holdings' ROE is not much to talk about. Next, when compared to the average industry ROE of 9.8%, the company's ROE leaves us feeling even less enthusiastic. Despite this, surprisingly, Zimmer Biomet Holdings saw an exceptional 24% net income growth over the past five years. Therefore, there could be other reasons behind this growth. For instance, the company has a low payout ratio or is being managed efficiently.

Next, on comparing with the industry net income growth, we found that Zimmer Biomet Holdings' growth is quite high when compared to the industry average growth of 11% in the same period, which is great to see.

past-earnings-growth
NYSE:ZBH Past Earnings Growth January 6th 2026

Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. Is ZBH fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Zimmer Biomet Holdings Using Its Retained Earnings Effectively?

Zimmer Biomet Holdings' three-year median payout ratio to shareholders is 23%, which is quite low. This implies that the company is retaining 77% of its profits. So it looks like Zimmer Biomet Holdings is reinvesting profits heavily to grow its business, which shows in its earnings growth.

Besides, Zimmer Biomet Holdings has been paying dividends for at least ten years or more. This shows that the company is committed to sharing profits with its shareholders. Existing analyst estimates suggest that the company's future payout ratio is expected to drop to 10% over the next three years. Accordingly, the expected drop in the payout ratio explains the expected increase in the company's ROE to 13%, over the same period.

Summary

In total, it does look like Zimmer Biomet Holdings has some positive aspects to its business. Even in spite of the low rate of return, the company has posted impressive earnings growth as a result of reinvesting heavily into its business. That being so, a study of the latest analyst forecasts show that the company is expected to see a slowdown in its future earnings growth. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.