Cintas Corporation (NASDAQ:CTAS) and Rollins, Inc. (NYSE:ROL) are the kind of companies investors can easily overlook. Neither sells the next big technology platform. They provide services businesses that households need repeatedly, collect recurring revenue and quietly build more scale each year.
That similarity makes this a useful comparison, but the two businesses are not interchangeable. Cintas is turning a fragmented collection of workplace services into a broader outsourcing relationship with businesses. Rollins is consolidating pest control while building recurring service relationships around a portfolio of brands. At 36.23x forward earnings, Cintas is asking investors to pay a much larger premium than Rollins, which trades at 25.91x. The interesting question is whether the gap reflects quality or simply expectations.
On June 26th, we published an article about 10 best stocks to buy according to billionaire Richard Chilton. Cintas ranked ninth on that list. The #1 stock in that list returned almost 50% since the article was published.
Cintas has a more powerful growth loop
Cintas Corporation has an advantage that is easy to underestimate: it can keep adding services to the same customer. A company that starts by outsourcing uniforms can also buy first-aid and safety products, facility services, or fire protection from Cintas. That creates a business where growth does not depend entirely on finding a new customer every time.
The bigger opportunity is still outside its existing base. Cintas estimates there are 16 million to 20 million businesses in its market versus roughly 1 million customers today. More than two-thirds of its new business is coming from companies that previously handled these services themselves. That is a much more interesting growth story than simply raising prices on an established customer base.
And scale feeds back into the model. More customers in a market make routes more efficient, while cross-selling increases the revenue generated from each route. Technology is helping Cintas improve routing, automation, and capacity utilization. The result is a business that can grow and expand margins at the same time. Management raised its fiscal 2027 adjusted EPS guidance to $5.45-$5.54 after a quarter in which operating margin reached a record 23.6%.
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Rollins may have the more interesting setup
Rollins, Inc. has a different advantage. Pest control is a highly fragmented industry, and recurring service contracts make the revenue base relatively durable. But the company also owns a collection of brands that approach the market differently.
That mattered in the latest quarter. Residential organic growth slowed to 3.6%, but the weakness was concentrated in parts of the business that depend heavily on consumers finding pest control through search, digital advertising, and inbound calls. Brands using direct sales and relationships with homebuilders performed much better. Commercial grew 7.2% organically, while termite and ancillary services grew 8.9%.
In other words, Rollins may be dealing with a customer-acquisition problem rather than a fundamental deterioration in the business. Management said recurring residential demand remained relatively healthy and that customer retention had not deteriorated. It also expects acquisitions to add 2% to 3% to revenue growth this year, while maintaining a long-term target of at least 7% organic growth.
The valuation gap is telling us something
Cintas is definitely the stronger business. Its growth is less dependent on one customer-acquisition channel, its cross-selling opportunity is broader, and its operating model gets better as density increases. There is also plenty of room to keep moving customers from doing these tasks themselves to outsourcing them.
But 36.23x forward earnings assumes the company will grow its bottom line for the foreseeable future. Rollins at 25.91x does not need to outperform Cintas. It needs to recover from a period of weaker residential demand and show that its long-term growth algorithm remains intact.
That makes this a tighter investment decision than the business comparison suggests. Cintas looks like the compounder while Rollins looks like the stock with more potential upside if execution improves.
Conclusion
Cintas has the stronger growth engine and, in our view, the better business model. Its ability to win new customers, cross-sell services, and improve route economics gives it several ways to compound. But 36.23x forward earnings leaves little room for a meaningful slowdown.
Rollins has more questions to answer, particularly around residential customer acquisition, but 25.91x offers a more forgiving starting point. For investors willing to accept more uncertainty, Rollins seems to be the more interesting buy today. However, Cintas is the business we would rather own. Rollins is the stock we would rather buy.
Market Sentiment
According to Insider Monkey’s database, 63 hedge funds held Rollins in Q2, up from 47 in Q1, while the value of those positions increased from $1.20 billion to $1.27 billion. Cintas also saw its hedge fund ownership rise to 64 funds from 63, with the value of those positions increasing from $2.51 billion to $2.76 billion. Overall, institutional interest in both stocks moved higher, with Rollins seeing the bigger increase in fund ownership.
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This article is originally published at Insider Monkey.
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