Analyzing CVS – Understanding Market Sentiment

By Kim Brooks • Wednesday, August 28 07:50 • Permanent Link

One of the standouts of today's morning trading session has been CVS Health, which logged a -2.1% drop and underperformed the S&P 500 by -2.0%. The Pharmaceutical Retail stock is now trading at $57.46 per share and is -11.74% below its average target price of $65.1. Analysts have set target prices ranging from $59.0 to 81.0 dollars per share, and have given the stock an average rating of buy.

The market seems to share this rosy outlook, since CVS Health has a short interest of only 1.4%. This represents the percentage of the share float that is being shorted, and each short position stands for an investor's expectation that the price of the stock will go down in the future.

When a stock is sold short, it means an investor has borrowed shares of the stock from their broker, and then sold them at the going market price. The investor hopes for the price to decline, so that they might buy those shares back at a lower price in the future. Once they do, they can return the borrowed shares to their broker, and keep the profit they made on the transaction.

One way to get an idea of the market sentiment on a stock is to check its rate of institutional ownership. In the case of CVS Health, institutional investors own 83.7% of the shares, which indicates they have a very high stake in the company. What does this really tell us?

Institutional investors such as hedge funds, investment firms, and wealth managers devote significant resources to identifying good investments. If they have decided to invest in CVS, it probably means they believe it is a solid investment choice.

But it could also mean they are buying up shares in an effort to acquire the company or to get seats on the board of directors. Also bear in mind that institutions are fallible (just maybe not quite as fallible as the average retail investor), so they may simply be wrong when they think they've found a good stock.

Overall, there is mixed market sentiment towards CVS Health because of an analyst consensus of some upside potential, a buy rating, a very low short interest, and a significant number of institutional investors. Investors should not base their decisions on market sentiment only, they should also be aware of a stock's fundamentals before committing.

At a glance, here are some essential statistics you may want to know about CVS:

It has trailing 12 month earnings per share (EPS) of $5.62 per share
CVS Health has a trailing 12 month Price to Earnings (P/E) ratio of 10.2 while the S&P 500 average is 28.21
The company has a Price to Book (P/B) ratio of 0.96 in contrast to the S&P 500's average ratio of 4.71
CVS Health is a Consumer Staples company, and the sector average P/E and P/B ratios are 22.08 and 3.05 respectively

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.