FLASHBACK | Best Idea Short --> $ROL

07/24/19 12:28PM EDT

Our Industrials analyst Jay Van Sciver issued his original "Best Idea" short call on Rollins (ROL) on 12/5/18. Shares of the pest control company have cratered 11% today. The stock is down approximately 18% since it was added as a short.

Why? Here's a tweet from Jay:


Below is an interview on Real Vision from April where Van Sciver analyzes the bear case, notes the deteriorating fundamentals, and discusses how to take advantage of the opportunity.


Below is an excerpt from Van Sciver's research note announcing Rollins as new Best Idea short:


The current share price of Rollins makes little sense to us, and we expect a significant downward revaluation by the market. 

Margin gains have stalled amid increasing competitive intensity in a mature, slow growing market.  Attractive markets for growth and acquisitions – those where route density offers cost advantages – present less runway and higher transaction prices.  Acquisition spending targets customer contracts, with acquisition spending likely best viewed as an alternative to advertising or other expensed means of growing the customer pool.  With GDP-type organic growth rates, housing headwinds, competitive entry, and a feuding family with a controlling stake, one would reasonably expect ROL to trade at a discount to the market. 

We expect a growth deceleration, consolidation of leases, a host of yellow/red flags, and broader coverage to generate >50% downside, as the S&P 500 addition premium fades from the share price.

If you would like more info on how to subscribe to Jay's institutional research email sales@hedgeye.com.

© 2020 Hedgeye Risk Management, LLC. The information contained herein is the property of Hedgeye, which reserves all rights thereto. Redistribution of any part of this information is prohibited without the express written consent of Hedgeye. Hedgeye is not responsible for any errors in or omissions to this information, or for any consequences that may result from the use of this information.