At first glance CVS Health (CV -0.02%) The stock meets the most important criteria for both value and income investors. In addition to the attractive dividend yield and the company’s seemingly low valuation, CVS recently beat a quarterly profit.

But checking boxes instead of examining a company’s fundamentals in depth can lead to hasty investments – and CVS is a prime example. The stock is near its lowest point in five years, which could whet the appetites of bargain buyers and deep-dive hunters.

But there’s more to it than that, just as CVS is more than a drugstore chain. The company also generates revenue from a division that provides health care services — and recent trends in health care are weighing heavily on its prospects.

The superficial appeal of CVS stock

A drop in the price of a stock can have knock-on effects. Firstly, the price-earnings ratio (P/E) can reach a relatively low level, regardless of the company’s earnings. In the case of CVS, the P/E ratio of the last twelve months of 10 is well below the industry median of 35. It is also below the company’s five-year average of 17.

Another side effect of a falling share price is that the dividend yield can increase, regardless of how high the dividend is. Granted, CVS has a history of regularly increasing its dividend, and the quarterly payout of $0.67 per share certainly makes the business more attractive to its shareholders.

But part of the reason CVS can offer a remarkable 4.4% dividend yield is because the stock has fallen sharply. Plus, a decent dividend isn’t much of a consolation prize for people who bought stock a few years ago and are now down on their investment.

One segment weighs on CVS’s prospects

In addition, investors may be attracted to CVS because the company reported second-quarter adjusted earnings of $1.83 per share, beating Wall Street’s expectations of $1.73 per share. However, that result is down from $2.21 per share in the year-ago quarter. The company attributed this primarily to a “decline in operating results in the health benefits segment” due in part to “ongoing utilization pressures.” In other words, patients are seeing their doctors more often.

CVS later repeated this theme in its second-quarter earnings release. Specifically, it reported that operating profit in the health benefits segment declined 39.1% year-over-year, due in part to “increased utilization.” Barron’s The article noted that members of CVS Health’s Medicare Advantage plan are seeking more treatment options in the wake of the Covid-19 pandemic. As a result, CVS has cut its full-year 2024 adjusted earnings per share forecast from at least $7 to the current range of $6.40 to $6.65.

Of course, this raises the question of how the company plans to address its Achilles heel, health insurance benefits. So far, it appears that CVS President and CEO Karen Lynch is primarily focused on “leadership changes” in this struggling business unit. Lynch will replace Brian Kane and directly oversee health insurance benefits, and Executive Vice President and Chief Strategy Officer Katerina Guerraz, an Aetna veteran, will serve as chief operating officer of that business unit.

The changes in leadership may give the appearance of decisive action, but that doesn’t mean the “utilization” problem will go away anytime soon. Investors will certainly want to see what the newly formed management is actually doing to manage, or at least cope with, the health insurance division’s financial expenses.

Earnings will provide the proof, and it will be a while before CVS has another opportunity to report quarterly data. Until then, investors should proceed with caution, treat valuation multiples with a grain of salt, and resist the temptation to chase returns while overlooking fundamental flaws.