In This Article:
UniFirst trades at $180.65 per share and has stayed right on track with the overall market, losing 9% over the last six months while the S&P 500 is down 4.7%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in UniFirst, or does it present a risk to your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.
Why Do We Think UniFirst Will Underperform?
Despite the more favorable entry price, we're cautious about UniFirst. Here are three reasons why we avoid UNF and a stock we'd rather own.
1. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect UniFirst’s revenue to stall, a deceleration versus its 7.7% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
2. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for UniFirst, its EPS declined by 2.7% annually over the last five years while its revenue grew by 5.6%. This tells us the company became less profitable on a per-share basis as it expanded.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
UniFirst historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 7.3%, somewhat low compared to the best business services companies that consistently pump out 25%+.
Final Judgment
UniFirst doesn’t pass our quality test. After the recent drawdown, the stock trades at 22.3× forward P/E (or $180.65 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. We’d suggest looking at the most entrenched endpoint security platform on the market.
Stocks We Would Buy Instead of UniFirst
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.