The recent price drop at CVS Health (CVS) has caught my attention. As earnings at the pharmacy chain have continued to grow, the stock price has fallen from $113 to $81 in the past years as investors have needed to readjust their sanity in valuing the stock.
Last year, it was trading at $113 per share compared to trailing earnings of $4.51. This was a silly high valuation of 25x earnings for a healthcare retailer. About $5 billion in profits should have in no way justified a valuation of $124 billion. The business was incredibly strong, and was delivering impressive growth, but the stock had reached a point that was nearly double what it was worth.
Since then, earnings have continued their march forward, with CVS expected to earn $5.75 per share by the end of 2016. The stock has fallen 28% in the past year, and the stock price … Read the rest of this article!