Here’s the story of Cintas (NASDAQ: CTAS)
You might not expect that a company like Cintas (NASDAQ: CTAS), which built its name renting uniforms to blue-collar workers, would see its stock surge year after year.
Yet over the last decade, it has generated an annualized return of 26.3%, beating Magnificent 7 members Alphabet (NASDAQ: GOOGL), Apple (NASDAQ: AAPL), Meta Platforms (NASDAQ: META) and Microsoft (NASDAQ: MSFT).
In addition to renting and selling work uniforms, including upscale products like lab coats, the company provides first aid, fire-fighting and cleaning products. Cintas has carved out quite a niche for itself in these markets.
It is No. 1 by far in the uniform rental sector, its main business, with a 40% market share. And it just launched a $5.3 billion hostile bid for the No. 3 player, Unifirst, which has a 13% share. It’s unclear if the deal will come to pass, but Cintas has combined takeovers with organic growth over the years to achieve a market capitalization of $78 billion.
Experts say that Cintas excels at every part of its business — from culture to delivering its products efficiently. The company’s customers sign five-year rental contracts that include price escalators.
“Cintas has executed on its strategy magnificently, adding new customers to each route and cross-selling services to existing customers over time,” Morningstar analyst Nicholas Lieb wrote in commentary.
Cintas has ‘pulled away from peers’
“In the last decade, Cintas has pulled away from its closest peers, Vestis and UniFirst, through superior digital analytics, industry-leading employee retention, and denser delivery routes.” The resulting profits have allowed the company to reinvest heavily in its business.
And customers appreciate the company’s efforts. Cintas’ customer retention rate of 95%-plus far exceeds the sub-90% rate of its main competitors, according to Lieb. And that superiority comes despite the fact that the company has a lower proportion of national customers than its peers.
As for technology, Cintas has developed the industry’s strongest system, experts say. “Manufacturing, collecting, cleaning, and delivering garments involve many steps that are fraught with human error,” Lieb notes.
“Cintas’ digital tools have greatly reduced the occurrence of missing a delivery or messing up an order, both of which can derail the operations of its customers.”
Cintas uniforms score high in appearance and function. Appearance is important for workers such as waiters/waitresses and flight attendants. Function is important for users such as construction and lab workers.
“Cintas has developed specialized manufacturing, laundering, and transportation methods to deliver high-performance, [industry]-specific workwear,” Lieb says.
The company proves that you don’t have to be a tech stock to trade like one.
The author owns shares of Cintas.
