Is It Time To Consider Buying Cintas Corporation (NASDAQ:CTAS)?

Today we're going to take a look at the well-established Cintas Corporation (NASDAQ:CTAS). The company's stock maintained its current share price over the past couple of month on the NASDAQGS, with a relatively tight range of US$428 to US$464. However, does this price actually reflect the true value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Cintas’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Cintas

What Is Cintas Worth?

According to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average, the stock currently looks expensive. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Cintas’s ratio of 34.98x is above its peer average of 24.17x, which suggests the stock is trading at a higher price compared to the Commercial Services industry. If you like the stock, you may want to keep an eye out for a potential price decline in the future. Given that Cintas’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

What kind of growth will Cintas generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 26% over the next couple of years, the future seems bright for Cintas. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in CTAS’s positive outlook, with shares trading above industry price multiples. However, this brings up another question – is now the right time to sell? If you believe CTAS should trade below its current price, selling high and buying it back up again when its price falls towards the industry PE ratio can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on CTAS for some time, now may not be the best time to enter into the stock. The price has surpassed its industry peers, which means it is likely that there is no more upside from mispricing. However, the positive outlook is encouraging for CTAS, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Cintas at this point in time. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of Cintas.

If you are no longer interested in Cintas, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.