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Should Investors Buy the Dip in UniFirst (UNF) Stock?

Alex Smith
·2 mins read

Palm Valley Capital recently released its Q1 2020 Investor Letter, a copy of which you can download below. The fund posted a return of 0.79% for the quarter, outperforming its benchmark, the S&P Small Cap 600 Index which returned -32.65% in the same quarter. You should check out Palm Valley Capital’s top 5 stock picks which helped them beat the market by nearly 33 percentage points. There weren’t a lot of funds who could deliver these kinds of returns without shorting the market or using aggressive put options.

In the said letter, Palm Valley Capital highlighted a few stocks and Unifirst Corp (NYSE:UNF) is one of them. UniFirst is a uniform rental company. Year-to-date, UNF stock lost 16.7% and on May 19th it had a closing price of $166.02. Here is what Palm Valley Capital said:

"Unifirst (UNF) is a market leading provider of workplace uniforms and protective clothing in the United States. Founded in 1950, UniFirst has a long history of generating free cash flow and maintaining a very strong balance sheet. As of December 31, 2019, the company had $18.70/share in cash and no debt. We used the market’s carnage as an opportunity to buy UniFirst at a discount to our calculated valuation."

In Q4 2019, the number of bullish hedge fund positions on UNF stock decreased by about 13% from the previous quarter (see the chart here), so a number of other hedge fund managers don't seem to agree with UNF’s growth potential.

At Insider Monkey we leave no stone unturned when looking for the next great investment idea. For example, we believe electric vehicles and energy storage are set to become giant markets, and we want to take advantage of the declining lithium prices amid the COVID-19 pandemic. So we are checking out investment opportunities like this one. We read hedge fund investor letters and listen to stock pitches at hedge fund conferences. Our best call in 2020 was shorting the market when S&P 500 was trading at 3150 after realizing the coronavirus pandemic’s significance before most investors. You can subscribe to our free enewsletter below to receive our stories in your inbox:

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Disclosure: None. This article is originally published at Insider Monkey.