Rollins has had an impressive run over the past six months as its shares have beaten the S&P 500 by 8.1%. The stock now trades at $54.68, marking a 13.2% gain. This performance may have investors wondering how to approach the situation.

Following the strength, is ROL a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Are We Positive On Rollins?

Operating under multiple brands like Orkin and HomeTeam Pest Defense, Rollins (NYSE: ROL) provides pest and wildlife control services to residential and commercial customers.

1. Skyrocketing Revenue Shows Strong Momentum

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Luckily, Rollins’s sales grew at an impressive 10.8% compounded annual growth rate over the last five years. Its growth surpassed the average industrials company and shows its offerings resonate with customers.

2. Elite Gross Margin Powers Best-In-Class Business Model

All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.

Rollins has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 52.1% gross margin over the last five years. That means Rollins only paid its suppliers $47.89 for every $100 in revenue.

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Rollins has shown terrific cash profitability, putting it in an advantageous position to invest in new products, return capital to investors, and consolidate the market during industry downturns. The company’s free cash flow margin was among the best in the industrials sector, averaging 16.7% over the last five years.

Final Judgment

These are just a few reasons Rollins is a rock-solid business worth owning, and with its shares outperforming the market lately, the stock trades at 47.9× forward P/E (or $54.68 per share). Is now a good time to initiate a position? See for yourself in our in-depth research report, it’s free.

Stocks We Like Even More Than Rollins

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