Security Analysis

Cintas Now At Bargain Levels

Peter Lynch is a huge advocate of buying what you know. To take advantage of this, one has to constantly be on alert for opportunities and further investigate the story and numbers behind the stock. Blindly purchasing stocks on the basis you love their products is a dangerous game and could result in major losses. Consider an individual who believes Apple (AAPL) is a good buy because they love their iPod. Great company? No doubt. Right price? No, the stock has had a nice run up since the iPod and iPhone were release and further upside might be limited or at least will not have the same run up prior to the two product release mentioned above. Always looking for opportunities, I noticed plenty of Cintas (CTAS) trucks passing by work.

I am constantly on the look out for these type opportunities. I found United Rentals while at school. Currently, our school is under construction and United Rentals provides a great deal of the equipment being used.
Morningstar’s Company Profile

Cintas is the leader of the uniform industry. Boasting more than 800,000 customers, it designs, manufactures, rents, and sells uniforms to businesses in various industries; roughly 5 million employees in these industries wear its uniforms every day. Cintas also provides ancillary products such as entrance mats, restroom supplies, first-aid and safety products and services, and document-management services.

Wall Street loves growth. Once that growth shows signs of slowing down, Wall Street will punish its stock. Consider this, when the company was growing its revenues 30% + and earnings 15%+, its price reached $50 with P/E consistantly being north of 30. Now growth has slowed down and its price has followed.But, while Wall Street adjusted to a lower growth rate, Cintas has continued to increase its earnings, revenue, cash flow, dividend. Earnings are currently growing at 7%, but in a normal economy, earnings are expected to grow at 10%. Over the past 10 years, Cintas has been able to sustain a ROE% north of 15%, and ROA% around 10%.Furthermore, Cintas has very little debt on its balance sheet that will keep it out of big trouble in this sluggish economy. In addition to consistently increase earnings, Cintas has a history of increasing its dividend. Dividends have been paid since 1984 and have increased every year. At these levels Cintas (CTAS) is a great bargain as indicated by its EV/EBITDA of 7.196.

Disclaimer: i own shares of CTAS through an investment club

If you enjoyed this post, make sure you subscribe to my RSS feed!

© 2008 Contrarian Value Investing.