Is Rollins' Stock Price Justified After Expansion News and a 25% Year-to-Date Surge?

• Ever wondered if Rollins is truly worth its current price, or if there is value hidden beneath the surface? You are not alone. Investors are always on the lookout for companies that could be undervalued or poised for their next big move.
• Rollins' share price has shown some interesting activity lately, down 1.8% over the last week but still up an impressive 25.1% year-to-date and 16.4% over the past year. This points to both recent volatility and longer-term growth momentum.
• Fueling these movements, recent news has centered around Rollins' ongoing expansion in new markets and industry partnerships, underscoring its focus on strengthening its operational reach. Analysts and market commentators have noted how this strategy might affect the company's risk profile as well as its future growth opportunities.
• Despite all this, Rollins currently scores a 0 out of 6 on our valuation checklist, indicating that it does not appear undervalued on any standard checks. We will dive deeper into popular valuation approaches next, but make sure to stick around, as we will also share an even better way to view a company's real value later in the article.

Rollins scores just 0/6 on our valuation checks. See what other red flags we found in the full valuation breakdown.

Approach 1: Rollins Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's value by projecting future free cash flows and discounting them back to present-day dollars. This approach takes into account both how much cash a business will generate and the time value of money, resulting in an intrinsic value grounded in actual financial fundamentals.

Currently, Rollins posts a Free Cash Flow (FCF) of $668 million. Analysts have provided cash flow estimates for the next five years, while longer-term projections have been extrapolated beyond that, predicting FCF to grow to $1.14 billion by 2035. Each of these future cash flows is discounted to reflect today's value using the 2 Stage Free Cash Flow to Equity model.

When comparing Rollins' estimated fair value of $47.49 per share to its current share price, the DCF model suggests the stock is trading at a 21.3% premium. This means Rollins appears overvalued based on expected future cash generation.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Rollins may be overvalued by 21.3%. Discover 875 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Rollins.

Approach 2: Rollins Price vs Earnings

The Price-to-Earnings (PE) ratio is a widely used and meaningful valuation metric for profitable companies like Rollins because it directly compares a company’s share price to its per-share earnings. Since Rollins consistently generates profits, the PE ratio provides insight into how much investors are willing to pay today for a dollar of current earnings, making it a relevant benchmark for valuation.

What is considered a “normal” or “fair” PE ratio varies depending on growth prospects and risk. Companies with strong growth trajectories can justify higher PE ratios, while those facing higher risks or stagnating tend to trade at lower multiples. For context, Rollins currently trades on a PE of 53.7x. This is well above both the average for its Commercial Services industry (23.3x) and its peer group (38.5x). This highlights investor optimism and pricing in high expectations for future performance.

However, instead of relying solely on industry averages or simple peer comparisons, Simply Wall St provides a “Fair Ratio” that considers not only earnings growth, but also risk factors, profit margins, market capitalization, and the nature of the industry. For Rollins, this Fair Ratio stands at 27.4x, a level that better reflects the company’s specific fundamentals rather than broad-based averages.

Comparing Rollins’ actual PE ratio of 53.7x with its Fair Ratio of 27.4x suggests the stock is trading at a notable premium to what would be justified by its underlying characteristics. This points to Rollins being overvalued by this measure.

Result: OVERVALUED

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1401 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Rollins Narrative

Earlier, we mentioned there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is your personal story about a company that connects what you believe will happen in its business with actual numbers, such as your assumed fair value, future revenue, earnings, and margins. It goes beyond ratios by allowing you to define how you think Rollins will grow, compete, and react to its unique challenges or opportunities.

A Narrative ties the company’s story directly to a financial forecast and then to a fair value, making the investment process more intuitive and holistic. This tool is available on Simply Wall St’s platform, used by millions of investors via the Community page, and lets you easily compare your perspective with others.

With Narratives, you can see your fair value next to the current price and decide whether you think it is time to buy, hold, or sell. Your story is always updated as new news or earnings come in. For Rollins, one investor’s narrative might expect sustained growth from recurring contracts and set a fair value as high as $72, while another sees risks from market competition and pricing pressure, putting fair value as low as $44.

Do you think there's more to the story for Rollins? Head over to our Community to see what others are saying!

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.

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