Zoetis Stock at 24% Discount, Worth Buying?
Zoetis (ZTS) stock deserves your consideration. Why? Because you get high margins – reflective of pricing power and cash generation capacity – for a discounted price. Here is some data.
- Revenue Growth: Zoetis saw growth of 5.3% LTM and 5.5% last 3 year average, but this is not a growth story
- Recent Profitability: Nearly 31.2% operating cash flow margin and 37.5% operating margin LTM.
- Long-Term Profitability: About 28.7% operating cash flow margin and 36.6% operating margin last 3 year average.
- Available At Discount: At P/S multiple of 6.8, ZTS stock is available at a 24% discount vs 1 year ago.
While revenue growth helps, this is not a growth perspective. Pricing power and high margins generate consistent, predictable profits and cash flows, which reduce risk and allow capital to be reinvested. Market tends to reward that.
As a quick background, Zoetis provides animal health medicines, vaccines, and diagnostic products for various livestock species, preventing diseases affecting respiratory, gastrointestinal, and reproductive systems.
| ZTS | S&P Median | |
|---|---|---|
| Sector | Health Care | – |
| Industry | Pharmaceuticals | – |
| PS Ratio | 6.8 | 3.2 |
| PE Ratio | 24.6 | 23.6 |
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| LTM* Revenue Growth | 5.3% | 5.4% |
| 3Y Average Annual Revenue Growth | 5.5% | 5.2% |
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| LTM* Operating Margin | 37.5% | 18.7% |
| 3Y Average Operating Margin | 36.6% | 18.1% |
| LTM* Op Cash Flow Margin | 31.2% | 20.3% |
| 3Y Average Op Cash Flow Margin | 28.7% | 19.8% |
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| DE Ratio | 10.6% | 21.0% |
*LTM: Last Twelve Months
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But do these numbers tell the full story? Read Buy or Sell ZTS Stock to see if Zoetis still has an edge that holds up under the hood.
Should you buy one stock you like or build a portfolio designed to win across cycles? Our numbers show that High Quality Portfolio has turned stock-picking uncertainty into market-beating consistency. This portfolio is incorporated in asset allocation strategy of Trefis’ Boston-based, wealth management partner – whose asset allocation framework yielded positive returns during the 2008-09 period when the S&P lost more than 40%.
Stocks Like These Can Outperform. Here Is Data
Here is how we make the selection: We consider stocks > $10 Bil in market cap, and then filter out those with high CFO (cash flow from operations) margins or operating margins. We additionally consider only those stocks that have meaningfully declined in valuation over the past 1 year.
Below are statistics for stocks with this selection strategy applied since 12/31/2016.
- Average 12-month forward returns of nearly 19%
- 12-month win rate (percentage of picks returning positive) of about 72%
But Consider The Risk
ZTS isn’t immune to big drops. It slid about 17% in the 2018 correction, 36% during the Covid pandemic, and nearly 47% in the inflation shock. Even with strong fundamentals, the stock can still take a serious hit when the market turns sour. Good quality cushions risk but doesn’t erase it.
But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read ZTS Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.
The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.