Weighing the Risks of These 3 Companies
As an investor, the possibility of degrading fundamentals, false information, high stock prices, and political upheaval threaten the potential returns on your investment. Being aware and weighing the risks will help you understand what you're getting into.
Are uniforms and safety risky?
Cintas sells and rents uniforms, provides cleaning services, and renders document management services. All in all, this company shows decent fundamental strength. Cintas increased revenue 5% last year, thanks to "salesman productivity" and an expanding economy in regions such as the United States. Its external auditors gave Cintas an "unqualified opinion," meaning they didn't find any qualifiers or proverbial dirty spots in its accounting and indicated less chance of information risk. Currently, Cintas' P/E ratio trades at 19, matching the S&P 500, indicating that market risk is no greater than the overall market. As for political risk, Cintas' global scale means it operates in regions such as Europe where the sovereign debt crisis ravaged the economy, although the region shows signs of recovery .
Looking to the future, product innovation, such as customizable bathroom supplies, will keep new and old customers engaged. Recovering European and American economies on top of the robust Latin American economy will serve as potential macroeconomic catalysts for Cintas' fundamentals.
Is keeping the world clean risky?
Ecolab sells cleaning and sanitation technologies mainly to industrial clients. It basically helps them maintain health compliance standards. Ecolab grew its revenue 74% last year due to its acquisition of Nalco , a chemicals sanitation company. Its financials received a "fairly presented" rating from external auditors, meaning its financial statements show reliability and information risk is limited. Ecolab's P/E ratio stands at 33, exceeding the P/E of 19 for the S&P 500, meaning that it's expensive, and that waiting for a market price correction to buy shares is warranted. Ecolab's global presence includes politically volatile regions such as the Middle East. The latest outbreaks in Syria serve as a huge example of political risk.
Looking forward, Ecolab constantly invests in product innovation. Back in May, Ecolab expanded its research center in Brazil and recently introduced a "STEALTH Fusion Fly Light" system that helps eliminate pests indoors. This represents just one of its many new product innovations. Ecolab's recent acquisition of Champion Technologies should help it capitalize on the growing energy sector, but expect added volatility from the underlying commoditized nature of oil and gas. Given the high market price risk and potential political risk associated with this company, an investor should use caution.
VF owns a variety of apparel and footwear brands, with The North Face serving as one of its highest growing brands. VF's strong portfolio of brands resulted in solid fundamentals for the company. Its revenue grew 15%, stemming from robust growth of its outdoor and actions sports products last year. People want to look good when engaging in extreme sports, and this company provides a way to do just that. VF's external auditors said the company presented its financial statements fairly . VF trades at a P/E ratio of 19, in the same territory as the S&P 500, meaning it's fairly valued.
This company grows through constant product innovation and acquisitions. For example, VF recently introduced "Thermoball," an insulation technology that will go in its North Face products. In addition, VF plans on streamlining its recently-acquired Timberland brand , which will add to its top and bottom lines.
On the whole, weighing the fundamental, information, market and political risks will help you determine the safety of your investments. In this case, all three companies show relatively low fundamental and information risk. However, the global scale of each of these companies means potentially high political risk. Ecolab, in particular, possesses a high market risk rating due to its relatively large P/E ratio.
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The article Weighing the Risks of These 3 Companies originally appeared on Fool.com.
William Bias has no position in any stocks mentioned. The Motley Fool recommends Cintas. The Motley Fool owns shares of Ecolab. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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