Stock Trade of the Week: Cintas Corp. (CTAS)

Cintas Corp. (Nasdaq: CTAS) – Cintas’ primary business is supplying uniforms to different industries and the company also provides other corporate identity products such as door mats. The company also provides restroom cleanings services and supplies and carpet and tile cleaning services. The company is headquartered in Cincinnati, Ohio and was founded in 1968.

Uniform supply and cleaning services might not be very glamorous, but Cintas has seen its earnings grow by 21% per year over the last three years. The company grew its earnings by 30% in the most recent quarterly report and analysts expect the company to grow earnings by 22% in 2018 as a whole.

Sales have grown by 15% per year over the last three years.

The company’s profitability measurements are really strong with a return on equity of 24.5%, a profit margin of 14.2%, and an operating margin of 16%.

Despite the strong fundamentals, there is some pessimism directed at the stock currently.

The short interest ratio is currently at 5.89 and that is much higher than I would expect given the profitability and growth.

There are 14 analysts following the stock and only five rate the stock as a “buy” while eight rate the stock as a “hold” and one rates it as a “sell”.

Both of these stats are good to see as short sellers can add buying pressure on a rally and analysts can flip to being more bullish and that can also drive the stock price higher.

Cintas has been trending higher since the beginning of 2016 and a trendline has formed that connects the lows from the last few years. That trendline is currently just under the stock price and should act as support if the stock falls a little further. The stock closed right on its 52-week moving average last week and that provides a second layer of support. The weekly oscillators are the lowest they have been in several years and I think that is providing a buying opportunity.

Suggested strategy: Buy CTAS with a maximum entry price of $182. I would set a target of at least $240 over the next 12 months (for a potential return of 35% from current prices). I would also suggest a stop at $165.

— Rick Pendergraft