Zebra trades at $290 per share and has stayed right on track with the overall market, gaining 27.1% over the last six months. At the same time, the S&P 500 has returned 23.2%.
Is there a buying opportunity in Zebra, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free for active Edge members.
Why Do We Think Zebra Will Underperform?
We're cautious about Zebra. Here are three reasons there are better opportunities than ZBRA and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Regrettably, Zebra’s sales grew at a tepid 3.7% compounded annual growth rate over the last five years. This was below our standard for the business services sector.
2. Core Business Falling Behind as Demand Plateaus
We can better understand Specialized Technology companies by analyzing their organic revenue. This metric gives visibility into Zebra’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, Zebra failed to grow its organic revenue. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests Zebra might have to lean into acquisitions to accelerate growth, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Zebra’s EPS grew at an unimpressive 6.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 3.7% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Zebra falls short of our quality standards. That said, the stock currently trades at 17.9× forward P/E (or $290 per share). This multiple tells us a lot of good news is priced in - we think there are better stocks to buy right now. We’d suggest looking at our favorite semiconductor picks and shovels play.
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