Rollins (ROL): A Modestly Undervalued Gem in the Pest-Control Industry?
Rollins Inc (NYSE:ROL) has recently experienced a daily loss of 6.1%, contributing to a 3-month loss of 18.98%. Despite this, the company reported Earnings Per Share (EPS) of $0.79. The question is, given these figures, is Rollins (NYSE:ROL) modestly undervalued? In this article, we will delve deep into the financials and operations of Rollins to answer this question. Read on for a comprehensive analysis of the company's valuation.
A Snapshot of Rollins Inc (NYSE:ROL)
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. The company boasts a diverse portfolio of pest-control brands, including the prominent Orkin brand, a market leader in the U.S. and Canada. Residential pest and termite prevention dominate the services provided by Rollins, reflecting the group's ongoing focus on U.S. and Canadian markets.
The company's current stock price is $33.73, with a market capitalization of $16.30 billion. However, the fair value (GF Value) of the company is estimated at $44.71, suggesting that the stock may be modestly undervalued.
Understanding the GF Value of Rollins (NYSE:ROL)
The GF Value is a proprietary measure of a stock's intrinsic value, based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded.
According to the GF Value calculation, Rollins stock is modestly undervalued. This conclusion is based on historical multiples that the stock has traded at, past business growth, and analyst estimates of future business performance. Therefore, the long-term return of its stock is likely to be higher than its business growth, given its current undervalued status.
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Financial Strength and Profitability of Rollins
Investing in companies with strong financial strength reduces the risk of permanent loss. Rollins has a cash-to-debt ratio of 0.25, which is lower than 72.38% of 105 companies in the Personal Services industry. The overall financial strength of Rollins is 7 out of 10, indicating fair financial strength.
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Rollins, with high profit margins and a profitability rank of 9 out of 10, is a safer investment. The company has been profitable 10 times over the past 10 years, with an operating margin of 18.67%, ranking better than 85.05% of 107 companies in the Personal Services industry.
Growth and Value Creation at Rollins
Growth is a critical factor in the valuation of a company. Companies that grow faster create more value for shareholders, especially if that growth is profitable. Rollins has an average annual revenue growth of 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 76.62% of 77 companies in the Personal Services industry.
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also evaluate profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. In the past 12 months, Rollins's ROIC was 17.51, while its WACC was 8.99.
Conclusion
In conclusion, Rollins (NYSE:ROL) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.62% of 77 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, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
This article first appeared on GuruFocus.
