Although the S&P 500 is down 1.9% over the past six months, CVS Health’s stock price has fallen further to $71.09, losing shareholders 6.9% of their capital. This might have investors contemplating their next move.
Is now the time to buy CVS Health, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is CVS Health Not Exciting?
Even though the stock has become cheaper, we're swiping left on CVS Health for now. Here are three reasons there are better opportunities than CVS and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within healthcare, a stretched historical view may miss recent innovations or disruptive industry trends. CVS Health’s recent performance shows its demand has slowed as its annualized revenue growth of 6% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect CVS Health’s revenue to stall, a deceleration versus its 8.4% annualized growth for the past five years. This projection doesn't excite us and suggests its products and services will face some demand challenges.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for CVS Health, its EPS declined by 2.1% annually over the last five years while its revenue grew by 8.4%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
CVS Health isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 10× forward P/E (or $71.09 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our top digital advertising picks.
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