Shares of Cintas (NASDAQ:CTAS) rose a very dramatic 41% through the first six months of 2019, according to data provided by S&P Global Market Intelligence. That easily beats the S&P 500 Index's roughly 17% gain over the same span. There wasn't any one specific event to point to, however, since the gain was basically a result of Cintas doing what Cintas does best.
Cintas is probably most recognized for providing companies with uniforms. That business continued to perform well in the first half of 2019. It has also been expanding its reach into new areas in recent years, with its first aid- and safety products-focused business also performing well in the first half. The company's revenues increased roughly 6% year over year in its fiscal third quarter, with operating income up nearly 40% (helped along by some one-time items).
Although these figures are impressive, some underlying successes really stand out. Specifically, Cintas' operating margin in its uniform business increased 80 basis points, with an even higher 130-basis-point improvement within its first aid and safety operations. That comes as the company continues to integrate a sizable acquisition (G&K Services) made in 2017. So the core of the business is not only strong but getting stronger. Investors have clearly been pleased to see this solid execution. Along with reporting good historical results, the company projected a fairly strong finish to its fiscal 2019 as well when it released quarterly earnings in March.
To be fair, the industrial company's business is highly cyclical. And in late 2018, it fell further than the broader market when Wall Street swooned amid concerns about the U.S. economic outlook. So a portion of its strong first-half stock advance was related to the bounce back from that fall. But the real driver for Cintas has long been solid execution, and it didn't disappoint investors on that score in the first half of 2019.
Cintas stock has a long history of trading at a rich valuation, which makes sense given its history of impressive financial results. That's no different today, with a price-to-earnings ratio of around 31.5 times sitting well above the company's five-year average of around 26.5 times. Essentially, it is a well-run company, and Wall Street knows it. That said, with the current economic expansion among the longest in history, most investors should probably put Cintas on the wish list and not the buy list today. It is a great company, but the stock hardly appears to be a bargain after the first-half stock advance.