This Animal Health Stock Is Trading at Its Lowest P/E Ratio Ever

Key Points

Controversy over a key osteoarthritis pain treatment has sunk Zoetis' stock.

Despite the setback, the company has a robust pipeline and solid growth prospects.

At its current valuation, Zoetis is likely to reward patient investors.

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Top-notch companies don't often come cheap. Zoetis (NYSE: ZTS) is one of the world's leading animal healthcare companies. The stock has traded at an average price-to-earnings ratio of nearly 39 over the past decade, a lofty premium to the broader market.

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Today, Zoetis stock trades at just 19 times earnings, its lowest valuation since the stock began trading. Stock prices routinely fluctuate, but such a stark departure from long-term trends warrants a closer look at the business. Here's why Zoetis has slipped, and why investors may want to jump on this stock opportunity with both feet.

Short-term woes have weighed on Zoetis

Every company will run into trouble at some point. The key is knowing the difference between minor issues and major ones. Zoetis develops a range of pharmaceutical products for both livestock and companion animals. Although the regulatory approval process for drug development isn't as rigorous for animals as it is for humans, drug developers still can suffer brand damage when things go wrong.

Zoetis has received backlash based on side effects from Librela, an osteoarthritis pain treatment for dogs. Side effects have included seizures, with some cases resulting in death. Dog owners have campaigned against Librela and tried to sue Zoetis, though a judge dismissed a class action lawsuit late last year. All the bad publicity caused the drug's sales to decline by 16% in 2025.

Only time will tell whether the stigma around Librela fades or if it will continue to underperform. Fortunately, Zoetis is very diversified, so one or two products won't make or break the business. Zoetis' entire osteoarthritis pain franchise (Librela and Solensia) generated $568 million in sales in 2025, only 6% of the company's total revenue.

However, the long-term prognosis remains excellent

Despite its Librela troubles, Zoetis grew total sales by 2% in 2025. The company also has a strong pipeline, with expectations that it will receive regulatory approvals across its major markets over the next several years. In all, Zoetis believes that 12 potential drugs could produce at least $100 million in annual sales.

Zoetis should also continue to benefit from some big-picture tailwinds that could boost its business for the foreseeable future. For instance, high living costs and lower birth rates are causing young people to seek companion animals, so they're spending more on pets than previous generations. Additionally, Zoetis' livestock business should thrive as growth and development in emerging markets drive demand for animal proteins higher over the next decade and beyond.

Wall Street analysts currently anticipate that Zoetis will grow earnings by an average of 9.3% annually over the next three to five years. That growth justifies buying its stock at 19 times earnings, even with its recently tarnished reputation. As time passes and the company's reputation heals, don't be surprised if its steady growth eventually drives the valuation back toward its higher historical norms.

Investors who buy the stock now and hold it will likely be very happy five years from now.

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Justin Pope has positions in Zoetis. The Motley Fool has positions in and recommends Zoetis. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.