Picture a company that’s delivered a 16.67% average annual total return for the past twenty years.

You’re probably thinking of a high-flying tech name. Maybe some obscure chemical company with a proprietary formula for a essential sealant used in aerospace. Or a pharmaceutical giant propped up by its latest blockbuster drug.

All good guesses. But the company in question is about as low-tech and mundane as it gets.

Cintas Corporation (CTAS) makes uniforms for security guards, firefighters, construction workers, janitors, and fast food employees. It started in 1929 as a laundry business and gradually evolved into manufacturing and servicing uniforms.

As a business model, it’s about as stodgy and unexciting as it gets.

As an investment, though, it’s been anything but.

Cintas has delivered market-beating returns alongside inflation-beating dividend growth. A $10,000 investment back in 2006 would now be worth over $218,000. Over the past five years, the company has compounded its dividend at a 10.32% annual rate, all while maintaining a conservative payout ratio of 36.29%.

It’s also knocking on the door of Dividend King status, with 43 consecutive years of dividend increases. On a fundamental level, this is a stable, highly predictable business.

But there’s a catch…

Cintas trades at a steep premium, currently sporting a price to earnings ratio of 36.49.

You can argue that premium is justified given the company’s track record. But it also introduces a real risk: multiple compression. If Cintas keeps firing on all cylinders but investor enthusiasm fades, or if demand for the stock cools, the valuation alone can drag returns down.

For example, at roughly $176 per share (based on $4.88 in EPS and a 36.49 PE), a re-rating to a still-elevated multiple of 27 would drop the stock to about $131.76. No earnings decline. No bad news. Just a lower multiple.

It gets worse. Earnings can grow and you can still lose.

Say Cintas earns $5 per share but trades at a PE of 30. That’s a $150 stock, still below where it trades today.

These numbers are illustrative, but the situation is very real. Potato processer Lamb Weston Holdings, Inc. (LW) is a good example. For years, it was a Wall Street darling and traded at a premium multiple more typical of a tech stock than a French fry maker. When sentiment cooled, the PE compressed to around 15, and the stock has fallen nearly 50% over the past five years.

That’s an extreme case, but not an impossible one.

This is the trade-off when you buy great businesses at sky-high valuations.

Personally, I’ve always liked Cintas. But the PE ratio has constantly kept me on the sidelines. That said, shares have started to pull back, down roughly 9% over the past year. The stock is now hovering near its 52-week low and yields about 1.01%, slightly more enticing than before.

Still, the premium multiple is hard to ignore.

If the stock continues to drift lower and the valuation resets to something more reasonable, such as a PE ratio that’s in-line with the S&P 500, this could become a very attractive long-term buy.

Until then, there are other market-beating businesses offering higher yields and less valuation risk.

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Disclaimer: This article is for entertainment purposes only. It is not financial advice, always do your own research.