As a native Wisconsinite, I was pained to watch the Green Bay Packers trade away Brett Favre. Three years later, I now see the wisdom in the move. Though Favre still had football left in him (his best season came with the Vikings in 2009), the Packers knew they'd be better off investing their time and money in someone new.
With this in mind, I think you'd be better off selling a stock I wrote in favor of back in October and investing your time and money in something else. That stock is Rollins (NYSE: ROL), the parent of pesticide companies Western Pest Services and Orkin, among others.
A little history
I originally found Rollins in August 2010, and the stock is up more than 40% since. At the time, I identified Rollins as a company that had the upper hand on privately held Terminix, as well as Ecolab (NYSE: ECL) and U.K.-based Rentokil (LSE: RTO), in winning market share as a result of the current war with bedbugs. The bedbug problem has gotten so big that the likes of Abercrombie & Fitch (NYSE: ANF) and Nike (NYSE: NKE) had to temporarily close their New York City stores to eradicate the pests.
I still believe Rollins will continue to grow earnings; I still think that it is the best suited to deal with a bedbug problem that could take years to deal with; and I still believe it will gain market share because of the number of first-time clients bedbugs will bring to it.
Wait, so you're suggesting a sell?
That's right. Simply put, I bought Rollins myself because I thought the company was well run, under recognized, and stood to profit from a growing trend.
It seems that since then others have caught on.
With its P/E jumping from 22.8 to 31.2 since August, most of Rollins's 42% stock gain has been due to increased expectations (as reflected in P/E) as opposed to increased earnings. In fact, heightened expectations have accounted for 90% of the stock's jump. This leads me to conclude that the stock is priced for perfection.
I just don't see earnings growing fast enough for this conglomerate of pest companies to support a P/E north of 30. The stock went up much higher and faster than I would have anticipated. Though I'm usually a long-term buy-and-hold investor, I'm taking a cue from the Packers and plan on allocating my time and money into something else moving forward.
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