Zoetis Stock Looks Undervalued, Ready to Move Up?

We think Zoetis (ZTS) stock could be a good value buy. It is currently trading lower than average valuation, is growing, even though modestly, and has strong margins to go with its low valuation.

Buying stocks with low valuations or trading well below their peaks but maintaining strong margins allows investors to capture mean reversion and valuation re-rating potential. The downside risk is potentially less because high-margin businesses can sustain earnings and recover faster when sentiment or market conditions improve

What Is Happening With ZTS

ZTS may be down -26% so far this year but is now 33% cheaper based on its P/S (Price-to-Sales) ratio compared to 1 year ago, and also trades at a P/E (Price-to-Earnings) ratio that is below S&P 500 median.

The stock may not reflect it yet, but here is what’s going well for the company. Zoetis maintains strong operating cash flow margins (31.0%) and operating margins (37.6%), driven by pricing power and cost discipline, as seen in Q3 2025’s 9% organic increase in adjusted net income. Although Q3 organic revenue growth moderated to 4% with narrower 2025 guidance due to macro trends and moderated clinic visits, livestock sales grew 10% from vaccine demand. The Simparica franchise expanded 7%, and new OA pain therapies like Portela and Lenivia are pipeline drivers for 2026. The current valuation, trading at a price-to-sales multiple 35% below a year ago, reflects market concerns over near-term growth moderation and increasing competition in some key portfolios.

ZTS Has Reasonable Fundamentals

• Revenue Growth: 2.7% LTM and 5.5% last 3 year average. Low growth, but this is a margin and value play.
• Strong Margin: Nearly 36.8% 3-year average operating margin.
• No Major Margin Shock: Zoetis has avoided any large margin collapse in the last 12 months.
• Modest Valuation: Despite encouraging fundamentals, ZTS stock trades at a PE multiple of 19.8

Below is a quick comparison of ZTS fundamentals with S&P medians.

*LTM: Last Twelve Months

But What Is The Risk Involved?

While ZTS stock may be a compelling investment opportunity, it’s always helpful to be aware of a stock’s history of drawdown. ZTS dipped 16.7% during the 2018 correction, 36% in the Covid crash, and nearly 47% through the inflation shock. Even with solid fundamentals, this stock hasn’t been immune to sharp drops. Market stress can hit hard, no matter how strong the company looks on paper. It’s a reminder that risk is always present, even with quality names. 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.

For more details and our view, see Buy or Sell ZTS Stock.

Stocks Like ZTS

Not ready to act on ZTS? Consider these alternatives:

1. Accenture (ACN)
2. Adobe (ADBE)
3. PayPal (PYPL)

We chose these stocks using the following criteria:

1. Greater than $2 Bil in market cap
2. Meaningfully below 1Y high
3. Current P/S < last few year average
4. Strong operating margin
5. P/E ratio below S&P 500 median

A portfolio of stocks with the criteria above would have performed has follows since 12/31/2016:

• Average 6-month and 12-month forward returns of 12.7% and 25.8% respectively
• Win rate (percentage of picks returning positive) of > 70% for both 6-month and 12-month periods
• Strategy consistent across market cycles

Move Beyond Single Stocks With A Multi Asset Portfolio

Individual picks are volatile but diversified assets offset each other. A multi asset portfolio helps you stay the course capture upside and reduce downside.

The asset allocation framework of Trefis’ Boston-based, wealth management partner yielded positive returns during the 2008-09 period when the S&P lost more than 40%. Our partner’ strategy now includes Trefis High Quality Portfolio, which 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