Shares of uniforms and office supplies company Cintas (NASDAQ: CTAS) stock surged 9.8% through 10:15 a.m. ET after the company beat analyst forecasts on Wednesday morning.
Heading into its fiscal third-quarter 2025 earnings report, analysts guessed Cintas would earn $1.06 per share on sales of $2.6 billion. Cintas beat the earnings target easily, reporting $1.13, and edged out the revenue target with $2.61 billion in sales.
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And then Cintas raised guidance for good measure.
Cintas sales grew 9.4% year over year in fiscal Q3, of which 0.9 percentage points came from acquisitions. Cintas expanded its gross margin on these sales by 120 basis points, to 50.6%, added 180 basis points to its operating margin (now 23.4%), and on the bottom line grew its profits nearly 18% to hit the aforementioned $1.13-per-share quarterly profit.
With the profit margin winds firmly at its back, Cintas then proceeded to raise guidance through the end of this fiscal year 2025. Management only narrowed its full-year sales range from $10.28 billion to $10.305 billion, but was able to raise its earnings guidance to between $4.36 and $4.40.
That's wonderful news, and investors are right to be pleased with it. I do, however, have some reservations about the price they seem to think is worth paying for Cintas stock.
Even assuming Cintas maxes out its new earnings guidance, at $212 per share, the stock now costs 48 times current year earnings. That's quite a bit of money to be paying for a janitorial supplies company, even one growing earnings at 18%. What's more, analysts who follow Cintas anticipate that earnings will slow somewhat in future years, such that five-year average earnings growth is likely to be closer to 12% than 18%. This results in a PEG ratio of (better sit down for this) 4 on this stock.
Long story short: Cintas is a great company and is coming off a great quarter. But as a stock investment, it simply costs too much.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool recommends Cintas. The Motley Fool has a disclosure policy.