After poor performance over the past years, CVS Health Corporation (CVS) seems ready for a breakthrough. The company has taken the right steps to improve its performance in the coming years, with strategic investments that will allow them to increase their customer base and revenue, while increasing efficiency. I consider the stock to be currently undervalued, and its performance over the next few years should drive the price up.
After hitting highs of over $110 in 2015, the stock’s price fell considerably and it currently stands at $77.76 per share. In the chart above, it's clear how, up to mid-2014, EPS, EBITDA and the stock’s price grew at a similar pace. However, in 2015 the market overvalued the stock, creating a significant gap between EPS/EBITDA and the stock’s price. This later reversed, with the stock’s price plummeting whereas EPS/EBITDA kept growing. From 2017 on, all metrics have had an uneven performance, but the gap has sustained. There is reason to believe that with EPS and EBITDA expected to increase in the coming years, the stock’s price should follow, and the gap should close. However, since the stock has a low beta (0.89), a big surge shouldn’t be expected, but rather a moderate climb.