Sometimes the market reminds me of the mob you always read about in tales of ancient Rome. Of course, instead of deciding whether some poor schmuck gets mauled by hungry lions, this mob decides what people's investments are worth on a daily basis.
Maybe we'd rather have the lions
This morning, it showed Cintas (NYSE:CTAS) that signs of stabilization just aren't good enough, and lopped more than 10% off its share price following its second-quarter earnings release. The primary catalyst for the move was probably management's warning that analysts' forecasts for Cintas' fiscal third quarter were overly optimistic.
Cintas' reported net income fell by 20% from its year-ago levels to about $57.2 million. Revenue decreased 10% to $884.5 million. However, the company did manage to generate $246 million in free cash flow over the six months that ended Nov. 30, which is a positive sign.
A few sharply dressed men
As you may have gathered, the uniform company's performance, which serves as a barometer for gauging the overall health of businesses in general, wasn't exactly vivacious last quarter. That observation parallels what we saw last week in Paychex's (NYSE:PAYX) results, and it's further evidence that stimulus funds aren't creating the huge number of jobs on Main Street that many had hoped to see by now.
Unlike Paychex, though, Cintas doesn't go out of its way to cater only to smaller businesses. Some of its clients include major employers like McDonald's (NYSE:MCD), Starbucks (NASDAQ:SBUX), and Delta Air Lines (NYSE:DAL). Unfortunately, they're not aggressively expanding their workforces either at the moment.
High-rolling or bargain-hunting?
In the current economic environment, Cintas faces one major challenge: Its business probably won't fully pick up until jobs return. But what you should be asking yourself is whether now's a good time to buy. Even after its haircut, Cintas still trades at a lofty 20 times its trailing earnings. Arguably, it deserves a premium valuation, since it's a cash-rich company that has proven earning power and a solid balance sheet.
If you think that Cintas is going to take off once the economic recovery produces more jobs, then you could justify paying up for it as an earnings growth play. On the other hand, Cintas also has value stock characteristics, so you may want to hold off on buying shares and hope that the fickle mob eventually makes this stock look like a real bargain.
Are you getting dressed for work? Looking sharp in your uniform, perhaps? Let us hear what the recovery looks like from where you're standing in the comments section below.
