CVS Health has had an impressive run over the past six months as its shares have beaten the S&P 500 by 12.8%. The stock now trades at $93.94, marking a 23.3% gain. This was partly due 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.
Why Is CVS Health Not Exciting?
We’re glad investors have benefited from the price increase, but we don’t have much confidence in CVS Health. Here are three reasons you should be careful with CVS, plus one 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 6.9% 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 Is Slim
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 rise by 1.8%, a deceleration versus its 8.3% annualized growth for the past five years. This projection doesn’t excite us and implies its products and services will face some demand challenges.
3. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable — for example, revenue could be inflated through excessive spending on advertising and promotions.
CVS Health’s EPS grew at an unimpressive 1.1% compounded annual growth rate over the last five years, lower than its 8.3% annualized revenue growth. 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 doesn’t pass our quality test. With its shares topping the market in recent months, the stock trades at 11.4× forward P/E (or $93.94 per share). This valuation multiple is fair, but we don’t have much faith in the company. We’re pretty confident there are more exciting stocks to buy at the moment. We’d recommend looking at one of our top software and edge computing picks.
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