The performance in the last quarter was nothing special with slight decline in revenues and minor improvement in net income. Over the years also, the revenues and net income have not shown any substantial growth. Consequently, the growth in the stock has also been moderate and it has appreciated by less than 20% on a 52 week basis. It has corrected by 7% from its recent high of around $82. The dividends have not been consistent, and the yield is also around 1% only. Valuations remain reasonably attractive with a trailing P/E of around 17 and a forward P/E of around 12. The debt has shown some declines in last quarter. As on March 31, the debt was around $1.7 billion and cash was around $1.2 billion which indicates reasonably good liquidity position (current ratio of around 4.5). The key to success is good growth with expansion of margins. For this, the company has to bring out innovative products from time to time and also explore new markets. This is the key to success in pharmaceutical / medical devices companies, and even smaller companies like PLC Systems (PLCSF) have been building patents around their innovative proprietary technologies to improve future growth possibilities. Currently Zimmer's main market is US & Europe (82% of the revenues) while Asia Pacific contributes the rest. However, over the years emerging markets may grow faster and expand to increase their contribution to the sales. Many companies are concentrating on specific countries in the emerging markets for bolstering growth. As per a recent SA article, the medical device industry is expected to grow by 6.1% CAGR over the next few years ($302 billion in 2017). If Zimmer can take advantage of that, then it can shake of the sluggishness and improve future growth prospects. Innovative products will remain the key.
