What’s next for the Rentokil share price?

This Fool explains why he thinks the Rentokil share price looks undervalued as the firm benefits from three growth tailwinds.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Senior woman wearing glasses using laptop at home

Image source: Getty Images

I have been interested in the Rentokil (LSE: RTO) share price for some time. And my interest in the company has only grown over the past 24 months. 

There are two significant themes driving growth at the pest control specialist. And it is highly unlikely these will come to an end anytime soon, suggesting the outlook for the group is only going to improve. 

5 Stocks For Trying To Build Wealth After 50

One notable billionaire made 99% of his current wealth after his 50th birthday. And here at The Motley Fool, we believe it is NEVER too late to start trying to build your fortune in the stock market. Our expert Motley Fool analyst team have shortlisted 5 companies that they believe could be a great fit for investors aged 50+ trying to build long-term, diversified portfolios.

Click here to claim your free copy now!

Three tailwinds 

The first theme is global warming. According to various studies, rodent populations are growing as the world heats up. Scientists believe they are thriving and breeding more in warmer environments. 

As well as this trend, in densely populated centres such as London, rodents are thriving on human leftovers. Neither of these trends has an immediate solution, suggesting their populations worldwide will only grow as we advance. 

For companies like Rentokil, this presents a tremendous opportunity. The business has the edge over competitors in the sector because it is one of the world’s largest and most recognised pest control businesses. And its recently-announced deal to acquire US peer Terminix for £5.1bn will only reinforce this advantage. 

This is one of the most significant acquisitions in the company’s history, but we can assume it will not be the last. The global pest control market is incredibly fragmented. Thousands of smaller operators, typically owned by a family-run business or small independant operator, dominate the sector. 

This fragmentation provides scope for further consolidation in the years ahead. In fact, I think this is a third tailwind that can help drive the company’s growth over the next five to 10 years. 

So, overall, all these tailwinds will support Rentokil’s medium-term growth. As earnings and revenues expand, I think the stock will follow suit as more investors buy into the company’s growth story. 

Rentokil share price risks

Of course, the company’s growth is not guaranteed. The main risks it faces right now are rising prices and competition. Although a fragmented market presents opportunities for consolidation, it also means additional competition. Rentokil’s size and economies of scale have helped the group fend off the competition up until this point.

However, investors should never use past performance to guide future potential. There will always be the risk that the business could lose market share to a smaller competitor if it takes its position in the market for granted. This is especially true in an inflationary environment. If the company hikes prices too far too fast, it could send consumers elsewhere.

However, even after considering these risks and challenges, I would be happy to buy the stock for my portfolio today. I think the pest control market will likely see substantial growth over the next few years, and the Rentokil share price may reflect this trend.

5G is here – and shares of this ‘sleeping giant’ could be a great way for you to potentially profit!

According to one leading industry firm, the 5G boom could create a global industry worth US $12.3 TRILLION out of thin air…

And if you click here, we’ll show you something that could be key to unlocking 5G’s full potential...

It’s just ONE innovation from a little-known US company that has quietly spent years preparing for this exact moment…

But you need to get in before the crowd catches onto this ‘sleeping giant’.

Click here to learn more

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

This cheap share fell 30% last week. I’d buy now

This huge US corporation saw its shares crash by 30% last week. But I'd buy this surprisingly cheap share now…

Read more »

Various denominations of notes in a pile
Investing Articles

These 7 shares produce passive income of 7% to 11% a year!

Passive income is extra money I make without working. By buying these seven shares, I could earn 8.9% a year…

Read more »

A person holding onto a fan of twenty pound notes
Investing Articles

6.6%+ dividend yields! 2 FTSE 100 dividend stocks to buy

Finding the best dividend stocks to buy requires extra care today as soaring inflation takes a bite out of shareholder…

Read more »

Arrow symbol glowing amid black arrow symbols on black background.
Investing Articles

At 85p, are Rolls-Royce shares a slam-dunk buy?

The Rolls-Royce share price is in penny stock territory. Roland Head explains why he thinks this FTSE 100 stalwart looks…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

‘Big Short’ investor Michael Burry is buying this quality growth stock! Should I?

In the first quarter, Michael Burry bought more of this growth stock. Is this a hint that I should also…

Read more »

A beach at sunset where there is an inscription on the sand "Breathe Deeeply".
Investing Articles

Stock market crash: here’s why falling prices is good news

Over in the US, a stock market crash is battering high-priced stocks. But I see falling shares as an opportunity…

Read more »

Hand flipping wooden cubes for change wording" Panic " to " Calm".
Investing Articles

These 5 FTSE 100 shares crashed in 2022. I’d buy 1 today

Although the FTSE 100 index is flat in 2022, some Footsie shares have crashed hard this year. But I see…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How investors can boost their passive income when the FTSE is falling

Stock markets are plagued with fears right now. Here's why I firmly believe those fears improve our passive income prospects.

Read more »