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Investors can approximate the average market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. For example, the CVS Health Corporation (NYSE:CVS) share price is down 26% in the last year. That's well below the market return of 4.2%. The silver lining (for longer term investors) is that the stock is still 2.4% higher than it was three years ago. The falls have accelerated recently, with the share price down 16% in the last three months.
While the stock has risen 3.5% in the past week but long term shareholders are still in the red, let's see what the fundamentals can tell us.
Check out our latest analysis for CVS Health
To quote Buffett, 'Ships will sail around the world but the Flat Earth Society will flourish. There will continue to be wide discrepancies between price and value in the marketplace...' By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
Unhappily, CVS Health had to report a 51% decline in EPS over the last year. This fall in the EPS is significantly worse than the 26% the share price fall. So despite the weak per-share profits, some investors are probably relieved the situation wasn't more difficult.
You can see how EPS has changed over time in the image below (click on the chart to see the exact values).
It's probably worth noting we've seen significant insider buying in the last quarter, which we consider a positive. On the other hand, we think the revenue and earnings trends are much more meaningful measures of the business. Dive deeper into the earnings by checking this interactive graph of CVS Health's earnings, revenue and cash flow.
What About Dividends?
When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. It's fair to say that the TSR gives a more complete picture for stocks that pay a dividend. As it happens, CVS Health's TSR for the last 1 year was -24%, which exceeds the share price return mentioned earlier. And there's no prize for guessing that the dividend payments largely explain the divergence!
A Different Perspective
CVS Health shareholders are down 24% for the year (even including dividends), but the market itself is up 4.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. On the bright side, long term shareholders have made money, with a gain of 4% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand CVS Health better, we need to consider many other factors. Case in point: We've spotted 3 warning signs for CVS Health you should be aware of.