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Today we're going to take a look at the well-established Cintas Corporation (NASDAQ:CTAS). The company's stock received a lot of attention from a substantial price movement on the NASDAQGS over the last few months, increasing to US$360 at one point, and dropping to the lows of US$318. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Cintas' current trading price of US$348 reflective of the actual 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.
Is Cintas still cheap?
According to my valuation model, Cintas seems to be fairly priced at around 19.80% above my intrinsic value, which means if you buy Cintas today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $290.19, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low 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 an opportunity to buy later on. 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. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. With profit expected to grow by 25% 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? CTAS’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?
Are you a potential investor? If you’ve been keeping tabs on CTAS, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
If you want to dive deeper into Cintas, you'd also look into what risks it is currently facing. For example, we've discovered 1 warning sign 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.
This article by Simply Wall St is general in nature. 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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