Three-year shareholder returns and corporate earnings remain lower as shares of CVS Health (NYSE:CVS) fell another 17% last week

As an investor, it is worth making sure that your overall portfolio outperforms the market average. But in any portfolio, there are probably some stocks that underperform that benchmark. Unfortunately, this has been the case for a long time CVS Health Corporation (NYSE:CVS) shareholders as the share price has fallen 54% over the past three years, well below the market return of around 32%. And newer buyers are having a tough time too, with a 38% decline over the last year. Furthermore, it is down 19% in about a quarter. This isn’t much fun for the owners.

With the company losing 17% last week, it’s worth examining the company’s fundamentals to see what we can infer from past performance.

Check out our latest analysis for CVS Health

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. One flawed but reasonable way to assess how sentiment towards a company has changed is to compare the earnings per share (EPS) with the share price.

CVS Health has seen its profit decline by an average of 12% per year over the last three years. This decline in earnings per share is slower than the 23% annual decline in the share price. Therefore, it is likely that the EPS decline has disappointed the market and made investors reluctant to buy. The less favorable sentiment is reflected in the current P/E ratio of 11.69.

You can see below how EPS has changed over time (discover the exact values ​​by clicking on the image).

We consider it positive that insiders have made significant purchases in the last year. Still, future profits will be far more important to whether current shareholders make money. Before buying or selling a stock, we always recommend taking a close look at the historical growth trends, which you can find here.

It is important to consider the total shareholder return as well as the share price return for a particular stock. The TSR incorporates the value of any spin-offs or discounted capital raisings, as well as any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often much higher than the share price return. We note that the TSR for CVS Health over the last three years was -49%, which is better than the share price return mentioned above. And it’s not worth guessing that dividend payments largely explain the divergence!

CVS Health shareholders are down 35% for the year (even including dividends), but the market itself is up 29%. Even the share prices of good stocks fall sometimes, but we want to see improvements in a company’s fundamental metrics before getting too interested. Regrettably, last year’s performance caps a poor run, with shareholders suffering a total loss of 5% per year over five years. We recognize that Baron Rothschild said investors should “buy when there is blood on the streets”, but we caution that investors should first be sure they are buying a high quality company. I find it very interesting to look at the share price as an indicator of business development in the long term. But to gain real insight, we need to consider other information too. For example, take risks – CVS Health did it 3 warning signs (and 1, which is a bit unpleasant) we think you should know.

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