Is The Increase In Volatility Signaling A Dangerous Market Environment?

My point is this, when a stock is being excessively valued by the market it becomes vulnerable to any issues that may occur. This is where the real risk of overvaluation comes into play. When a stock is excessively overvalued, you could say it is priced to perfection, and therefore, extremely vulnerable to any hint of bad news.

However, so-called bad news is not always readily apparent. Here is a copy of the CVS graph as presented in the article. Consensus earnings estimates for fiscal year 2016 were $5.86, and earnings for 2017 were estimated at $6.55. Based on these numbers, the company was approaching fair value, and therefore, I indicated that I was becoming interested in researching the stock deeper because it was beginning to look attractive.

However, on November 8, 2016 the company reported earnings and softened their guidance below previous expectations. Consequently, moderately bad news that was not apparent when I wrote the article had suddenly become apparent.  This is what CVS Health Corp (NYSE:CVS)’s earnings and price correlated graph currently looks like based on updated estimates.

The following forecast calculators reflect a longer forward looking timeframe than the historical oriented graphs.  The forecast calculator for CVS Health Corp (NYSE:CVS) looked like this on October when I wrote the article.