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Why Cintas Stock Advanced 10% in February

By Reuben Gregg Brewer – Updated Apr 10, 2019 at 2:54PM

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Good news for the economy is good news for Cintas, and continuing positives for the U.S. economy have investors in a good mood

What happened

Shares of Cintas (CTAS 0.99%) rose just over 10% in February, according to data provided by S&P Global Market Intelligence. Add that to the gain in January, and Cintas was up around 24% in the first two months of 2019. That's a pretty impressive showing for any company, and marked a big turnaround from the last few months of 2018.

So what

The end of 2018 was filled with trepidation, pushing stocks lower across the board. Cintas was no exception, with its stock losing roughly 20% between early September and the end of last year. The big concern driving that drop was fear that the economy was on the brink of a downturn, pushed there by the U.S.-China trade war and contentious budget negotiations in Washington, among other things. A recession would be painful for Cintas, which provides uniforms to business customers, since a slowing economy would mean reduced demand and weaker financial results.

Check out the latest earnings call transcript for Cintas.

An arm pointing to a graph on a computer screen.

Image source: Getty Images

As 2019 has progressed, however, there have been increasingly positive signs. The budget impasse has...passed. As February drew to a close, U.S. and Chinese trade negotiations appeared to have taken a positive turn. And the numbers on gross domestic product released at the end of the month showed that the U.S. economy expanded 2.9% in 2018. So the economy may not be as bad as was feared at the end of 2018. Investors have been getting more positive about Cintas' future with continuing evidence that the U.S. outlook remains solid.   

Now what

After a big rally in Cintas' shares so far in 2019, the company's stock isn't as great a deal as it was in late 2018. Although the P/E of around 25 is a little below the five-year average of about 26, the price-to-earnings-growth ratio (also called the PEG ratio) of 2.1 is a little above its five-year average of 2. The forward-looking PEG ratio suggests that investors are paying at least full price for Cintas' expected earnings growth.   

Cintas is a well-run company, and paying a fair price isn't a bad thing. However, while economic conditions look to be solidifying, it is important to remember that the current expansion is one of the longest on record. Every expansion eventually ends. When that happens, Cintas' stock will probably go on sale again. Bargain-minded investors should probably keep Cintas on their wish lists for now.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.

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