Shareholders of UniFirst would probably like to forget the past six months even happened. The stock dropped 22.7% and now trades at $178.09. This might have investors contemplating their next move.

Is there a buying opportunity in UniFirst, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is UniFirst Not Exciting?

Despite the more favorable entry price, we're swiping left on UniFirst for now. Here are three reasons why you should be careful with UNF and a stock we'd rather own.

1. Projected Revenue Growth Is Slim

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 rise by 1%, a deceleration versus its 5.8% annualized growth for the past five years. This projection is underwhelming and implies its products and services will face some demand challenges.

2. EPS Growth Has Stalled

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.

UniFirst’s flat EPS over the last five years was below its 5.8% annualized revenue growth. 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 7.4%, somewhat low compared to the best business services companies that consistently pump out 25%+.

Final Judgment

UniFirst isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 21.1× forward P/E (or $178.09 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d suggest looking at the Amazon and PayPal of Latin America.

Stocks We Like More Than UniFirst

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