1 Reason To Avoid Cintas
Over the last couple months, I’ve shown you stocks to avoid…
Stocks to consider buying…
- Is Walmart A Buy As It Preps Its “Amazon Prime Killer?”
- Should You Buy Coca Cola?
- Should You Buy Apple?
- Should You Buy McDonald’s?
And some of the best stocks related to the coming Internet of Things…
All these recommendations are to help you either avoid pain and terrible stocks. Or to help you find potentially great stocks to invest in during this pandemic.
Doing both of things together will help you earn higher than average investment returns and build your wealth.
There are few safe places to invest your capital today. And this number is growing smaller every day this crisis lasts.
The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.
And this is huge part of things.
But another huge part of this is also losing as little capital as possible.
The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well to grow your wealth.
Both things are necessary to build wealth. But most only think of investing well.
Today I want to talk about the second part of things that few consider… Staying away from an investment…
But before I do that, I need to tell you what a Dividend Aristocrat is and why it’s important for you. Because today I’m recommending you avoid a Dividend Aristocrat.
A Dividend Aristocrat is a company in the S&P 500 that has paid and increased its base dividend every year for at least 25 consecutive years.
They’re popular to own for many investors not just because you can earn dividend income from them for your retirement.
As of this writing there are only 66 Dividend Aristocrats in the world… And while they generally outperform other stocks.
There are still reasons to avoid some of them today if you’re looking to earn dividend income.
And today I want to show you 1 Reason To Avoid Dividend Aristocrat Cintas.
1 Reason To Avoid Cintas
It’s Enormously Overvalued
Normally in these articles I talk about other things like profitability, cash flow, the affects coronavirus is having on a company’s financials, and other things.
But frankly none of those matter with Cintas Corp (CTAS) due to its huge valuation.
As of this writing Cintas is a $31.1 billion market cap uniform and professional products company.
Here’s a visual look of some of Cintas’ product and service lines…
These products and services are necessary and will remain necessary during this coronavirus pandemic… Which is a great thing for the company.
But because of this stability and safety this company gives shareholders people keep buying its stock.
And this is pushing the stock to overvalued levels.
Its P/E is 37.2.
It’s P/CF is 25.
And its forward P/E is 39.7.
I look to buy companies at valuations below 20 on each of these metrics.
These show that Cintas is overvalued by a large margin right now.
Why does this matter to you?
Because if you buy overvalued stocks it means you’re paying too high a price for the stock compared to its profits and cash flows.
When you buy overvalued stocks, it makes the investment riskier. And usually also means your investment returns will be lower owning its stock going forward.
Because the long-term value of stocks is based on the amount of profits and cash flow it produces.
Not on emotions and rampant speculation like we’re seeing today.
When you buy overvalued stocks, it increases the risk of owning the investment. And this lowers the margin of safety.
Think of margin of safety like a rainy-day fund…
I want as much of a margin of safety and room for error as possible when investing in stocks because bad stuff always happens at some point in a company and the world.
If you’re buying Cintas stock today there’s little room for error due to its huge valuation.
And this makes it a risky investment today even though it’s likely to continue performing well.
If you want to buy Cintas put it on your watchlist and buy it when it’s cheaper and there’s a better chance for you to earn higher investment returns.
If you own its stock already and plan to hold for the long term you should continue holding due to its profits, cash flow, and overall solid business model.
If you own Cintas and don’t plan to hold for the long term you should sell it now while its overvalued to lock in some of your returns.
Use the following links to some of our recent articles to learn other ways to protect yourself and your investments in these uncertain times.
- The Best Internet of Things Stock
- The Best Telehealth Stock
- One Thing That Will Increase Your Investment Returns More Than Anything
- This Top Robotics Stock Isn’t One You’d Think Of
- The Best Internet Security Stock
- Should You Buy Oracle?
- The Best Unknown Artificial Intelligence Stock
Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.