ARMK

We rate Aramark (ARMK) as a Hold with a composite score of 63.0/100 at a current price of $41.20. The stock presents a mixed quantitative picture — neither compelling enough to warrant new accumulation nor weak enough to justify selling for existing holders. Our factors are split, and the overall profile suggests patience is warranted.

The rating is primarily driven by strength in value (83th percentile) and stability (75th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (36th percentile) and momentum (61th percentile) tempers our overall conviction. We assign a No Moat rating (19/100), High uncertainty, and Poor capital allocation.

Key items to watch: balance sheet deleveraging progress. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Aramark holds an above-average position (#19 of 50) within the Retail Trade sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 63.0/100 places it at rank #419 in our full 7,333-stock universe. With a $10.3B market capitalization, Aramark operates at meaningful scale within the Retail Trade sector, providing competitive advantages in distribution, procurement, and customer reach.

The near-term outlook is constructive, with revenue growing at 15% and momentum in the 61th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 36th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 8% (-27.8pp vs sector) narrow to operating margins of 4% (+0.1pp vs sector) and net margins of 1.6%, yielding a gross-to-net conversion rate of 19%. This conversion rate is typical for the sector, suggesting a standard cost structure without notable efficiency advantages or disadvantages.

At a current price of $41.20, Aramark appears undervalued relative to its fundamentals. Our value factor score of 83/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 37.3x (a 74% premium to the sector median of 21.4x), EV/EBITDA of 14.6x (at a premium), P/B of 3.4x, P/S of 0.6x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a High uncertainty rating to Aramark. Key risk factors include significant leverage (322% debt-to-equity), the combination of leverage (322% D/E) and thin margins (1.6% net) amplifies downside risk. The wide range of potential outcomes widens our fair value estimate and increases the possibility of permanent capital impairment. Investors considering this name should size positions accordingly and demand a meaningful margin of safety before initiating.

Specific risk factors that inform our assessment include: significant leverage (322% debt-to-equity); the combination of leverage (322% D/E) and thin margins (1.6% net) amplifies downside risk. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 75th percentile and quality factor at the 65th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (75th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile warrants caution and disciplined position management.

We rate Aramark's capital allocation as Poor. Key concerns include elevated leverage (322% D/E). Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Aramark significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Aramark receives a Hold rating with a composite score of 63.0/100 (rank #419 of 7,333). Our quantitative framework assigns a No Moat (19/100, trend: stable), High uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 64/100.

Our analysis supports a neutral stance on Aramark. While the quantitative profile is not weak enough to warrant selling, it lacks the multi-factor strength required for a buy recommendation. Existing holders should maintain positions and monitor for catalysts — either fundamental improvement or valuation compression — that would shift the risk-reward balance.