Like a puppy chasing its tail, some new investors often pursue “the next big thing,” even if that means buying “history stocks” with no income, let alone profit. But as Peter Lynch put it in One Up on Wall Street, ‘Long shots hardly ever pay off.’

If, on the other hand, you like businesses that have revenue, and even profits, then you might be interested in Cintas (NASDAQ: CTAS). Now, I’m not saying the stock is necessarily undervalued today; but I cannot shake the appreciation of the profitability of the company itself. In comparison, loss-making companies act like a sponge for capital – but unlike such a sponge, they don’t always produce something when in a hurry.

Discover our latest analysis for Cintas

How fast is Cintas increasing its earnings per share?

If a company can sustain earnings per share (EPS) growth long enough, its stock price will eventually follow. This means that growing EPS is seen as a real benefit by most successful long-term investors. We can see that over the past three years Cintas has increased its EPS by 12% per year. It’s a good rate of growth, if it can be sustained.

A close look at revenue growth and profit before interest and tax (EBIT) margins can help shed light on the sustainability of recent earnings growth. I note that the income of Cintas operations was lower than its turnover for the last twelve months, which could skew my analysis of its margins. Cintas shareholders can rely on the fact that EBIT margins have increased from 17% to 20% and revenues are increasing. It’s great to see, on both counts.

The graph below shows how the company’s bottom line has progressed over time. For more details, click on the image.

As we live in the present moment all the time, there is no doubt in my mind that the future matters more than the past. So why not check out this interactive graph showing future BPA estimates for Cintas?

Are Cintas Insiders Aligned with All Shareholders?

We wouldn’t expect to see insiders owning a significant percentage of a $ 44 billion company like Cintas. But we are reassured by the fact that they have invested in the company. Indeed, they have invested a sparkling mountain of wealth, currently valued at US $ 6.5 billion. This equates to 15% of the company, making insiders powerful and aligned with other shareholders. It may be my imagination, but I feel the glimmer of an opportunity.

It’s good to see insiders invested in the company, but are the pay levels reasonable? Well, based on CEO pay, I would say they are indeed. For companies with market capitalizations over $ 8.0 billion, like Cintas, the median CEO salary is around $ 11 million.

The CEO of Cintas received total compensation of just US $ 3.7 million in the year to. It sounds like modest compensation to me, and may suggest a certain respect for the interests of shareholders. Although the level of CEO compensation is not a big factor in my view of the company, modest compensation is positive because it suggests that the board has the interests of shareholders in mind. It can also be a sign of a culture of integrity, in the broad sense.

Does Cintas deserve a spot on your watchlist?

As I mentioned before, Cintas is a growing company, that’s what I like to see. Profit growth may be Cintas’ main game, but the fun not stop there. With a significant level of insider ownership and reasonable CEO compensation, a reasonable mind might conclude that this is a stock to watch. And the risks? Every business has them, and we’ve spotted 1 warning sign for Cintas you should know.

You can invest in any business. But if you’d rather focus on stocks that have demonstrated insider buying, here’s a list of companies that have made insider buying in the past three months.

Please note that the insider trading discussed in this article refers to reportable trades in the relevant jurisdiction.

This Simply Wall St article is general in nature. We provide commentary based on historical data and analyst forecasts using only unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell shares and does not take into account your goals or your financial situation. Our aim is to bring you long-term, targeted analysis based on fundamental data. Note that our analysis may not take into account the latest announcements from price sensitive companies or qualitative documents. Simply Wall St has no position in the mentioned stocks.

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