About five years ago, I realized that everywhere I went, there was a CVS Health Corp (NYSE:CVS). Cities, suburbs, uptown, downtown — it didn’t matter. No matter where I went, there seemed to always be a CVS right around the corner. I felt like Bill Murray in Groundhog Day.
I’m exaggerating but you get the point. I remember thinking that there were just too many CVS stores and that one day the market would become saturated and cannibalized.
At some point, CVS stock and its ill-conceived lot would go the way of Sears and the Dodo bird.
I don’t typically follow CVS stock on a research basis and I hadn’t looked at in a while, but when I was taking my dog Clifford to the veterinarian today (don’t worry, it was just for his checkup; he is fine) I saw that they are building yet another CVS in my town. This is literally the seventh one that is within a five-mile radius of my house!
Don’t get me wrong. I like CVS and I go there all the time. I get ink for my printer there because it’s closer than the local Staples (NASDAQ:SPLS), I buy food there because it is closer than the local grocery store, and I bought socks there on Saturday because it’s closer than the mall. As a customer I can understand the appeal. But as an investor it made me think.
I decided to take a look at how the CVS stock price has performed over the past five years. Unfortunately, I didn’t short it way back then. My instincts appear to have been correct. Shareholders must be very disappointed.
Since 2015, the price of CVS shares has fallen from around $110 to around $53. This is a loss of over 50%. In the same time period, the S&P 500 went from 1,900 to 2.900. This is gain of about 33%.
According to MarketWatch, CVS posted its first loss in five years in 2018. Earnings per share were $3.99 in 2014, $4.66 in 2015, $4.93 in 2016 and $6.47 in 2017. Then something went wrong.
In 2018, the company lost 57 cents a share. In addition, according to the Wall Street Analysts who follow it the projected growth rate is just 7.4X while the projected growth rate for the sector is 11.5X.
Maybe this weak performance is a sign of market saturation … or maybe it isn’t. But it’s not the only dynamic pressuring CVS stock. A more detailed analysis would need to be performed to get a more in-depth understanding of the relevant issues.
But I am not giving a trade recommendation.
My intent is to show that there is a simple yet important lesson to be learned here.
Sometimes it takes a tremendous amount of hard work and due diligence to uncover the clues and signals that will lead to insights into the future price of the stock. But sometimes, as is the case with CVS stock, you can see the clues everywhere you look.
At the time of this writing Mark Putrino did not hold any positions in any of the aforementioned securities.