CVS Health’s 22.1% return over the past six months has outpaced the S&P 500 by 8.7%, and its stock price has climbed to $78.44 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy CVS Health, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free for active Edge members.
Why Is CVS Health Not Exciting?
We’re glad investors have benefited from the price increase, but we're sitting this one out 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 6.4% over the last two years was below its five-year trend. 
2. 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 2.9% annually over the last five years while its revenue grew by 8.2%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
CVS Health historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.3%, somewhat low compared to the best healthcare companies that consistently pump out 20%+.
Final Judgment
CVS Health isn’t a terrible business, but it isn’t one of our picks. With its shares outperforming the market lately, the stock trades at 11.1× forward P/E (or $78.44 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere. We’d recommend looking at a safe-and-steady industrials business benefiting from an upgrade cycle.
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