Week to date, shares of Rollins (ROL 1.42%) were up 11% as of 12:36 p.m. ET on Friday, according to data provided by S&P Global Market Intelligence. The pest control services company reported a 15% year-over-year increase in revenue for the third quarter, which exceeded Wall Street's expectations. Adjusted revenue increased by 8%.
The post-earnings jump helped the stock narrow its recent performance gap with the broader market. Rollins shares have returned about 50% over the last five years compared to the S&P 500's return of 70%.
Why Rollins delivered strong growth in the third quarter
Rollins serves a fragmented market. This is helping the company deliver double-digit percentage top-line growth in a challenging macro environment. Management is seeing strength in the pest control market that led to consistent growth in the mid-teens percentages in each month of the third quarter.
The company is backing up strong top-line gains with solid growth on the bottom line. Adjusted operating income grew 29% year over year. Favorable demand trends for pest control services should fuel more growth for Rollins.
Is Rollins stock a buy?
Management believes the company is well positioned for more growth through existing operations and acquisitions. It is on track to complete the integration of Fox Pest Control, which it recently acquired, and investors can expect Rollins to find more deals to boost long-term growth.
There are favorable trends fueling the business. More people are spending time at home and migrating to warmer climates where insects thrive. Homeowners are also shifting from do-it-yourself to hiring outside help to check for termites and provide other pest control services.
The stock looks expensive at a forward price-to-earnings ratio of 40, but given the company's consistent revenue growth, that premium might be worth paying. Investors often award companies a high valuation if they've delivered consistent growth, especially if it looks like they have many more years of growth ahead, which is the case for Rollins.
