Is Rollins Inc (ROL) Modestly Undervalued? A Comprehensive Analysis
Rollins Inc (NYSE:ROL) experienced a loss of -8.08% on September 07, 2023, bringing its 3-month loss to -14.87%. Despite this downturn, the company's Earnings Per Share (EPS) stands at 0.79. This raises the question: is Rollins (NYSE:ROL) modestly undervalued? In this article, we'll conduct a thorough valuation analysis to answer this question. So, let's delve in.
About Rollins Inc
Rollins is a global leader in route-based pest-control services, with operations spanning North, Central and South America, Europe, the Middle East, Africa, and Australia. Its portfolio of pest-control brands includes the prominent Orkin brand, a market leader in the U.S. and Canada. The majority of Rollins' services are focused on residential pest and termite prevention, owing to its ongoing focus on the U.S. and Canadian markets. Currently, the stock price is $35.01, while its estimated fair value (GF Value) is $44.13, suggesting that the stock may be modestly undervalued.
Understanding GF Value
The GF Value is a measure of the current intrinsic value of a stock, derived from a proprietary method. This method considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Rollins (NYSE:ROL) appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
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Financial Strength of Rollins
Investing in companies with poor financial strength can lead to higher risk of permanent loss. Therefore, it is crucial to assess the financial strength of a company before buying its stock. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Rollins has a cash-to-debt ratio of 0.25, which is worse than 72.12% of 104 companies in the Personal Services industry. The overall financial strength of Rollins is 7 out of 10, which indicates that the financial strength of Rollins is fair.
Profitability and Growth of Rollins
Companies that have been consistently profitable over the long term offer less risk for investors. Rollins has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.90 billion and Earnings Per Share (EPS) of $0.79. Its operating margin is 18.67%, which ranks better than 85.44% of 103 companies in the Personal Services industry. Overall, the profitability of Rollins is ranked 10 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Rollins is 10.1%, which ranks better than 73.47% of 98 companies in the Personal Services industry. The 3-year average EBITDA growth is 19.2%, which ranks better than 74.68% of 79 companies in the Personal Services industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Rollins's return on invested capital is 17.51, and its cost of capital is 8.34.
Conclusion
In conclusion, the stock of Rollins appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 74.68% of 79 companies in the Personal Services industry. To learn more about Rollins stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
