Rentokil Initial plc (LSE:RTO), a GBP£5.70B mid-cap, operates in the commercial services industry, which generally follows the ups and downs of the economic cycle, as its services cater to various industries across different sectors. Commercial services analysts are forecasting for the entire industry, negative growth in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the UK stock market as a whole. In this article, I’ll take you through the sector growth expectations, and also determine whether Rentokil Initial is a laggard or leader relative to its service sector peers. View our latest analysis for Rentokil Initial

What’s the catalyst for Rentokil Initial’s sector growth?

E-commerce remains a later driver of growth for commercial services, which enables service companies to grow share and reduce cost to serve. More than ever, it is crucial for the incumbents to position itself to respond to the growing relevance of stock-less independent dealers, further service pure e-commerce players and also build on their own e-commerce capabilities. Over the past year, the industry saw growth of over 100%, beating the UK market growth of 11.51%. Rentokil Initial leads the pack with its impressive earnings growth of over 100% last year. However, analysts are not expecting this industry-beating trend to continue, with future growth expected to be -68.60% compared to the wider commercial services sector growth hovering next year.

Is Rentokil Initial and the sector relatively cheap?

Commercial services companies are typically trading at a PE of 14x, in-line with the UK stock market PE of 18x. This means the industry, on average, is fairly valued compared to the wider market – minimal expected gains and losses from mispricing here. However, the industry returned a higher 20.41% compared to the market’s 12.75%, potentially illustrative of past tailwinds. On the stock-level, Rentokil Initial is trading at a lower PE ratio of 8x, making it cheaper than the average commercial services stock. In terms of returns, Rentokil Initial generated 118.49% in the past year, which is 98.07% over the commercial services sector.

What this means for you:

Are you a shareholder? Rentokil Initial is a commercial services industry laggard in terms of its future growth outlook. This is possibly reflected in the PE ratio, with the stock trading below its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto Rentokil Initial as part of your portfolio, or maybe increase your holding. If you’re bearish on the stock, now may not be the best time to sell!