- Buys
- 0 of 4
- The rule needs three, so Rollins stays out of the basket.
- Operating income, third quarter
- -1.0%
- Revenue grew 6.2% in the same quarter.
- Free cash flow yield
- 3.90%
- Below the 4.94% 10-year Treasury yield.
- Free cash flow growth the price needs
- 9.3% a year
- Our arithmetic, at a 9.44% discount rate.
Quality, held for a decadeA business it wants to own, at a multiple that still assumes the old growth rate.
Deep value, margin of safetyNormalized earnings give no cushion, and tangible book is negative.
Macro and reflexivityCarry is negative until organic growth stabilizes or the multiple resets.
GrowthThe seat did not answer in time and cast no vote.
Session of November 3, 2026. Three seats voted; Investor D did not answer before the session closed. Organic growth, residential growth and the revised outlook come from news coverage of the October 21 release and are marked unverified on the sheet. This is the committee's first Rollins review.
Bottom line
Rollins has compounded free cash flow at 14.8% a year since 2021 on almost no capital. The October quarter broke the pattern. Revenue still grew, operating income fell, and management reportedly blamed AI search for a slowdown in new residential customers.
We think the price still assumes the old company. It needs free cash flow to grow 9.3% a year for a decade, against organic growth now reported in the low to mid single digits. The contracted base is not the issue. The funnel that replaces departing customers is.
Investors A and C would own it cheaper, or after proof the funnel works. Investor B would not come close. The 2026 10-K, which must be filed by March 1, 2027, is where the first test lands.
The business in 60 seconds
Rollins, owner of Orkin, sells pest control and termite protection to homes and businesses, much of it under recurring contracts. The filings tag one reportable segment, so the residential, commercial and termite split is not filed (10-Q, filed October 22, 2026).
Capital spending was $28.1M in 2025, 0.23x depreciation and amortization (10-K, filed February 12, 2026). Growth is bought through tuck-in acquisitions rather than plant, which is why goodwill and intangibles total about $2.06B and tangible book is negative.
We could not read the ownership table in the 2026 proxy (filed March 17, 2026). News coverage describes LOR Inc. as a holder above 10% that bought about $50M of stock in late October. We have not confirmed that in a filing.
| Fiscal year | Revenue | Operating margin | Free cash flow | Diluted shares |
|---|---|---|---|---|
| 2021 | $2.4B | 18.6% | $374.6M | 492.1M |
| 2022 | $2.7B | 18.3% | $435.3M | 492.4M |
| 2023 | $3.1B | 18.8% | $495.9M | 490.1M |
| 2024 | $3.4B | 19.3% | $580.1M | 484.3M |
| 2025 | $3.8B | 19.3% | $650.0M | 484.1M |
10-K filings on SEC EDGAR. Margins for 2021 to 2024 are computed on rounded revenue.
What changed
- Growth slowed for three straight readings. Revenue rose 11.0% in 2025, 8.0% in the first nine months of 2026 and 6.2% in the September quarter, to $1.09B (10-Q, filed October 22, 2026).
- Profit fell while revenue grew. Operating income was $222.9M against $225.0M, and net income fell 3.4% (10-Q). Coverage cites claims, insurance, fleet and fuel costs.
- The search explanation. Management reportedly said residential organic growth slowed to 2.3% as homeowners turned to AI assistants instead of search results, and cut its full-year organic outlook to 4% to 6% (Investing.com, October 21, 2026). Both figures are reported, not filed.
- A competitor kept growing. Ecolab's Global Pest Elimination segment grew revenue 9.3% to $363.5M in the September quarter, with segment operating income up 6.3% at a 20.3% margin (Ecolab 10-Q, filed October 29, 2026).
Our Reddit review met the same shift from the publisher's side.
The bull case on Rollins
- Demand does not care about the cycle. Revenue grew every year from 2021 to 2025, and Ecolab's pest unit shows the industry still growing near 9%.
- It needs almost no capital. Capital spending stayed between $27M and $33M a year while revenue rose by more than half.
- Cash goes back to holders. Dividends rose every year, to $327.9M in 2025.
- The damage looks narrow. If the slowdown sits in one-off residential leads, the contracted base is untouched, and net debt of $598.1M is under a year of free cash flow.
Pests do not respond to recessions, software or fashion.
Investor A, Watch, on why demand is not the question
this is a distribution problem, and those are more often solved than demand problems.
Investor C, Watch, reading the Ecolab figure
The bear case on Rollins
- The multiple pays for growth that just slowed. At 32.7x earnings, the price leans on a decade like the last four years.
- Margins moved the wrong way first. Operating income fell on a 6.2% revenue gain, before any extra spending to rebuild search visibility shows up.
- The cash anchor is flattered. Coverage says September-quarter free cash flow was helped by the timing of a tax refund, so the trailing yield overstates the run rate.
- Growth is partly purchased. Acquisition spend is not tagged in the filings, so true owner earnings are hard to see.
- The unit economics are dark. Churn, the cost to win a customer and lifetime value are not disclosed.
If that is accurate, part of the residential growth engine was a paid lead-generation advantage rather than a structural one.
Investor A, Watch, on what the quarter says about the moat
This may be a good business, but it is not a good investment at this valuation.
Investor B, Avoid
Where the committee splits
Two Watch votes and one Avoid. The seats agreed on direction and split on why.
Was part of Rollins's advantage a paid search position?
| Position | Seats | The figure it rests on |
|---|---|---|
| A channel problem that can be fixed | C | Ecolab pest revenue +9.3%, September quarter (Ecolab 10-Q) |
| A growth engine that may not come back | A | Residential organic growth 2.3% (news, unverified) |
What settles it. Residential organic growth back above 5% without a fall in operating margin, in the first-quarter 2027 10-Q, due by May 10, 2027.
From the chair, to Investor A. If residential growth returns above 5% while marketing spend rises, which line on the sheet would tell you the moat repaired rather than that a new toll was paid?
What does Rollins actually earn?
| Position | Seats | The figure it rests on |
|---|---|---|
| Five-year average earnings, no credit for growth | B | Average net income $430.66M, 2021 to 2025 |
| Trailing free cash flow, high conversion | A, C | Free cash flow $671.8M, capex 0.23x D&A |
What settles it. Fiscal 2026 free cash flow against 2025's $650.0M, stripped of the tax refund timing, in the 10-K due by March 1, 2027.
From the chair, to Investor B. What evidence would make you treat amortization of acquired intangibles as a cost of growth rather than as maintenance that consumes earnings?
Is the discount about rates or about the business?
| Position | Seats | The figure it rests on |
|---|---|---|
| Partly rates: carry is negative | C | 3.90% yield against a 4.94% 10-year |
| The business has changed | A, B | Operating income -1.0% on revenue +6.2% |
What settles it. Fourth-quarter revenue growth of 5% or more with operating income growing again, reported by the March 1, 2027, 10-K deadline.
From the chair, to Investor C. If the 10-year fell 100 basis points with organic growth unchanged, would your verdict move, and if not, is carry the right frame?
| Investor | Verdict | What breaks its thesis |
|---|---|---|
| A | Watch 6 | Fiscal 2026 organic growth below 3.0% (to Avoid, its words) or operating margin below 18.0%, 10-K by March 1, 2027. Critical: the digital customer channel. |
| B | Avoid 9 | Operating margin below 16%, or net debt above 2x operating cash flow, 10-K by March 1, 2027. Critical: sustained profitable growth; $1.148B of owner earnings by 2029 moves it toward Watch. |
| C | Watch 6 | Fourth-quarter revenue growth below 5%, 2026 operating margin below 18.5%, or short interest above 8% in December 2026. Critical: AI local discovery, toward Buy if growth stabilizes, toward Avoid if not. |
| D | No response | No vote was cast. |
Valuation
What the price requires. The arithmetic is the desk's own, and no seat saw it. At 9.44%, the 10-year yield plus 4.5 points, the market value needs trailing free cash flow of $671.8M to grow 9.3% a year for ten years, putting year three at $876.2M. At 8.44% the need is 6.9% and $820.4M. At 10.44% it is 11.4% and $929.5M. The yield on enterprise value, net debt counted, is about 3.8%, still under the 10-year.
Hatched bars are what today's market value needs. Seat bars are each seat's probability-weighted year-three figure. Investor B's is an owner-earnings proxy for 2029.
| Investor | Bear | Base | Bull | Weighted, year 3 | Against the price |
|---|---|---|---|---|---|
| A | 25%, $635M | 50%, $775M | 25%, $875M | $765M | below the band |
| B | 30%, $457M | 50%, $668M | 20%, $818M | $635M | below the band |
| C | 30%, $700M | 50%, $850M | 20%, $950M | $825M | inside the band |
From each seat's scenarios. Every figure here is a point estimate, so no midpoint was needed.
Two seats sit below the band and one inside it, with no filed outlook to set against them. Investor C clears the lowest hurdle and still voted Watch, because it reads the payoff as lopsided:
Upside needs two things to go right, organic growth re-accelerating and the multiple holding; downside needs only one, the current trajectory persisting, which for a 4-5% grower with flat earnings justifies a materially lower multiple.
Investor C, Watch
| Investor | Entry discipline |
|---|---|
| A | A free cash flow yield of 5% or better, about 20x trailing free cash flow |
| B | 10.5x conservatively normalized earnings or less, about a 9.52% earnings yield |
| C | Run-rate free cash flow yield at parity with the 10-year, about 20x or below |
Comparables
| Company | Market cap | Growth last FY | Operating margin | P/E | FCF yield |
|---|---|---|---|---|---|
| Rollins (ROL) | $17.2B | 11.0% | 19.3% | 32.7x | 3.9% |
| Ecolab (ECL) | $86.5B | 2.2% | 17.0% | 41.5x | 2.1% |
| Cintas (CTAS) | $89.2B | 8.9% | 23.1% | 43.3x | 2.3% |
| Frontdoor (FTDR) | $6.2B | 13.6% | n/a | 22.5x | 6.3% |
| ABM (ABM) | $3.2B | 4.6% | 3.6% | 19.0x | 9.9% |
Each company's SEC filings and the Yahoo Finance price, computed the same way for every row. Frontdoor's operating income is not tagged.
On price to free cash flow, Rollins is at 25.6x against 48.2x for Ecolab, 43.9x for Cintas, 15.9x for Frontdoor and 10.1x for ABM. Its net debt is 0.8x operating income, level with Cintas and well below Ecolab's 4.3x.
Rollins now trades well below the two route-based compounders and well above Frontdoor, the peer that wins homeowners online the same way. The market is asking which of those it resembles. Rentokil Initial, the largest pest company, files outside the US domestic system and is left out.
Key risks
Ranked by the desk. Raised by shows who put each risk on the record.
| Risk | Why it matters | Raised by | First signal |
|---|---|---|---|
| High. The customer funnel moves to AI assistants | Lost customers must be replaced every year, and winning them could cost more for good | Analyst; Investor A; Investor C; forum (unverified) | Residential organic growth below 3% in a 2027 filing |
| High. Margin compression | Cost inflation and new marketing spend both hit before revenue responds | Investor B; Investor C; analyst | Fiscal 2026 operating margin below 18.5%, 10-K |
| Medium. Growth bought through acquisitions | Goodwill and intangibles exceed equity, with returns not measurable from filings | Analyst; Investor A; desk arithmetic | Widening gap between organic and total growth |
| Medium. Multiple reset to a slower grower | The price needs 9.3% a year against single-digit reported organic growth | Desk arithmetic; Investor C | Fourth-quarter revenue growth below 5% |
| Medium. Control and incentives | A family vehicle limits outside owners; pay tracks adjusted EBITDA | Analyst (general knowledge, not in the filings we read) | Reserve releases or a change in the incentive metric |
| Low. Disclosure litigation | Law firms announced investigations after the July report | Reported by GlobeNewswire, not confirmed in a filing | A federal complaint or a 10-K contingency note |
Refinancing is not a live risk on the filed figures.
What to watch
| Date | Event | What it decides |
|---|---|---|
| Monthly | FINRA short interest settlement (FINRA) | Whether Investor C's 8% threshold for December 2026 is crossed |
| By March 1, 2027 | Fiscal 2026 10-K (SEC deadline, large accelerated filer) | Organic growth, operating margin and free cash flow against every seat's breaker |
| By May 10, 2027 | First-quarter 2027 10-Q (SEC deadline, 40 days after March 31) | Whether residential growth is back above 5% |
| Ongoing | Form 4 and Schedule 13D filings by the large holder (SEC EDGAR) | Whether the reported insider buying is confirmed |
Owning it onchain
xStocks issues a token tracking Rollins. We have not judged whether it is investable: our only quote came before regular US trading opened on November 3, 2026, when market makers quote thinly.
Data
| Item | Figure | Source |
|---|---|---|
| Price | $36.03, November 2, 2026 close | Yahoo Finance |
| Shares outstanding | 478,045,280, as of October 12, 2026 | 10-Q cover, SEC EDGAR |
| Market cap | $17.22B | Price times shares |
| Short interest | 5.23% of shares, October 15, 2026 | FINRA |
| 10-year yield | 4.94%, October 30, 2026 | FRED DGS10 |
Method. Four investors with different philosophies, each on a different AI model, read one identical fact sheet and voted independently. A name needs three Buys to enter a basket. How the committee works.
Correction. This article first said the token was not investable on a 2.31% round-trip cost. That quote was taken before regular US trading opened, when market makers quote thinly. We now judge that cost only during regular US market hours, and we have removed the figure and the verdict.
As of November 3, 2026, BagsCapital manages no outside capital and holds no position in Rollins. Nothing here is investment advice.