Rentals to Own

United Rentals (NYSE: URI) isn’t a household name, but maybe it should be. The company makes the bulk of its revenue by renting equipment to residential and nonresidential construction projects, and to industry; it also opportunistically sells aging equipment when market prices are favorable. While that might not sound like an Earth-shattering business, the stock recently traded at about $100 per share, up from around $10 a share in January 2010, making it an impressive performer over the past decade.

There’s reason to think it can continue beating the market from here. The equipment rental market is highly fragmented. United Rentals, with more than 1,100 locations across North America, claims to be the largest equipment rental company in North America, but it has only 13% market share. That leaves plenty of room for growth via expansion and acquisitions — cash-consuming activities that explain why the stock pays no dividend.

United Rentals uses its strong free cash flow (over $1.5 billion in 2019) and debt to fund acquisitions. But it also repurchases quite a lot of its stock, boosting the value of the remaining shares; the company’s share count has shrunk by more than 10% over the past couple of years.

Construction projects aren’t ever going away, boding well for United Rentals. Despite solid growth and prospects, its forward-looking priceto-earnings (P/E) ratio was recently below 7. Give it some consideration.