Dividend Stock #3 To Protect Your Retirement Portfolio – Cintas
Continue Avoiding Cintas And Its Ever Growing Dividend For Now
In the last few months, I’ve written 3 articles telling you to avoid the Dividend Aristocrat Cintas due to its high valuation.
- 1 Reasons To Avoid Cintas
- 1 More Reason To Avoid Cintas
- Cintas Earnings Rise 15.4% – Should You Buy This Dividend Aristocrat?
Today, I give an update after it released its latest quarterly earnings and tell you why to – Continue Avoiding Cintas And Its Ever Growing Dividend For Now.
You can read the full articles above.
But if you don’t want to; here’s a quick recap of why I said to avoid it previously…
Two months ago, I showed you 1 Reason To Avoid Cintas stock even though it’s a
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 it’s overvalued to lock in some of your returns.
This thesis to avoid investing in Cintas due to its high valuation continued to play out after it released its most up to date quarterly earnings a few days ago… Sort of.
- Fourth quarter 2020 sales dropped 2.1% to $1.42 billion.
- Fourth quarter operating income rose 3.8% to $326.5 million.
- Fourth quarter net income rose 10.2% to $258.4 million.
A bit of a mixed bag here in the fourth quarter of 2020… But mostly good. Especially the increase in profits.
What about the full year?
- Revenue fell 3.4% to $4.22 billion.
- Operating profit rose 7.7% to $1.03 billion.
- And net income rose 15.3% to $843.3 million.
Again, mixed bag but mostly good due to the rise in profits.
I first told you to avoid Cintas in early August due to its high valuation… But since then, its stock is up 11.5%.
So, was I wrong to tell you to avoid it?
A stock being overavlued makes buying it more risky… And means you should expect lower returns owning it going forward.
Because of that I still am good with my recommendation to avoid it back in August.
Again, even though its great, produces a ton of profits and cash, has competitive advantages, and pays an ever growing dividend.
I want an enormous margin of safety for you because this eliminates risk AND gives you higher investment returns.
I don’t want you to have just one or the other of these things. I want you to have both.
And that will still require some patience when it comes to Cintas because its still too overvalued to buy.
Its P/E is now 36.5.
Its P/CF is 28.3.
And its Forward P/E is 32.8.
Meaning its still too overvalued to buy.
Remain patient and wait to buy Cintas still.
As of this writing, Dividend Aristocrat Cintas even though great… Is still a stock to avoid due to its valuation.
Because of all the risks out there right now, I sent you this article in case you missed it.
And I hope you consider avoiding Cintas stock to protect your retirement portfolio… Before any kind of market crash.
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.