Should You Buy Zoetis Stock Before Earnings?

by Rob Otman
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Zoetis (NYSE: ZTS) is a large cap company that operates within the pharmaceuticals industry. Its market cap is $31 billion today, and the total one-year return is 21.77% for shareholders.

Zoetis stock is beating the market, and it reports earnings tomorrow. But does that make it a good buy today? To answer this question, we've turned to the Investment U Stock Grader. Our Research Team built this system to diagnose the financial health of a company.

Our system looks at six key metrics...

Earnings-per-Share (EPS) Growth: Zoetis reported a recent EPS growth rate of 17.07%. That's below the pharmaceuticals industry average of 29.35%. That's not a good sign. We like to see companies that have higher earnings growth.

Price-to-Earnings (P/E): The average price-to-earnings ratio of the pharmaceuticals industry is 29.99. And Zoetis's ratio comes in at 32.59. Its valuation looks expensive compared to many of its competitors.

Debt-to-Equity The debt-to-equity ratio for Zoetis stock is 273.27%. That's above the pharmaceuticals industry average of 56.68%. That's not a good sign. Zoetis's debt levels should be lower.

Free Cash Flow per Share Growth Zoetis's FCF has been higher than that of its competitors over the last year. That's good for investors. In general, if a company is growing its FCF, it will be able to pay down debt, buy back stock, pay out more in dividends and/or invest money back into the business to help boost growth. It's one of our most important fundamental factors.

Profit Margins The profit margin of Zoetis comes in at 19.33% today. And generally, the higher, the better. We also like to see this margin above that of its competitors. Zoetis's profit margin is above the pharmaceuticals average of 13.64%. So that's a positive indicator for investors.

Return on Equity Return on equity tells us how much profit a company produces with the money shareholders invest. The ROE for Zoetis is 61.64%, and that's above its industry average ROE of 13.3%.

Zoetis stock passes three of our six key metrics today. That's why our Investment U Stock Grader rates it as a Hold.

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Please note that our fundamental factor checklist is just the first step in performing your own due diligence. There are many other factors you should consider before investing. That's why The Oxford Club offers more than a dozen newsletters and trading advisories all aimed at helping investors grow and maintain their wealth.

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