Foolish investors, though, look at the long term and understand that shorter trends can change. For example, worldwide beef consumption in 2013 is projected to be higher than 2012. They also look at the big picture. Zoetis doesn’t only provide health products for cattle. The company also markets products for pigs and poultry. Global consumption continues to rise for both.
3. Everybody else is buying it
One of the the most foolish mistakes in investing is buying a stock simply because others are buying it. Do any words of wisdom from your mother about jumping off a cliff come to mind?
Foolish investors ask why so many people are buying Zoetis. Some of the frenzy could simply be the thrill of the biggest IPO since Facebook Inc (NASDAQ:FB) . That comparison should provide a sobering lesson, though. Shares of the social networking giant still haven’t regained the levels experienced at the IPO. The market appears to be liking Zoetis a lot more than Facebook so far.
The reasons why this is true probably tie in at least partially with the fundamentals we already covered about increased pet spending and prospects for higher levels of meat consumption across the world. Zoetis actually doesn’t boast the strongest growth in this market, though — at least not recently.
Prior to the spinoff, Pfizer Inc. (NYSE:PFE) reported that its animal health business (that would become Zoetis) grew sales by only 2% for the first nine months of 2012 compared to the same period in 2011. By comparison, Eli Lilly & Co. (NYSE:LLY) increased its animal health revenue by 22% during the first nine months of 2012, with a boost from an acquisition in the second half of 2011. Merck & Co., Inc. (NYSE:MRK) grew animal health sales by 5% during this same period. However, both Lilly and Merck have kept their animal health units in-house. Zoetis is attractive to investors because the stock represents the only pure play publicly traded animal health business.
Foolish take
So should you buy Zoetis? Yes — if you believe the business fundamentals in its favor (and there are several) justify the steep price. Otherwise, the answer is no.
My take is that Zoetis is a great business with solid prospects. However, its growth prospects, while quite good, aren’t great enough to justify a P/E of 37 in my opinion. I’m just too much of a Fool to think differently.
The article 3 Foolish Reasons to Buy This Expensive Stock originally appeared on Fool.com and is written by Keith Speights.
Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Facebook. The Motley Fool owns shares of Facebook.
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