Earnings are growing at MSC Industrial Direct (NYSE:MSM) but shareholders still don't like its prospects

It's normal to be annoyed when stock you own has a declining share price. But in the short term the market is a voting machine, and the share price movements may not reflect the underlying business performance. So while the MSC Industrial Direct Co., Inc. (NYSE:MSM) share price is down 10% in the last year, the total return to shareholders (which includes dividends) was -7.1%. That's better than the market which declined 22% over the last year. On the other hand, the stock is actually up 1.1% over three years. It's down 12% in about a month. But this could be related to poor market conditions -- stocks are down 9.6% in the same time.

With the stock having lost 4.8% in the past week, it's worth taking a look at business performance and seeing if there's any red flags.

See our latest analysis for MSC Industrial Direct

To paraphrase Benjamin Graham: Over the short term the market is a voting machine, but over the long term it's a weighing machine. One imperfect but simple way to consider how the market perception of a company has shifted is to compare the change in the earnings per share (EPS) with the share price movement.

Even though the MSC Industrial Direct share price is down over the year, its EPS actually improved. It could be that the share price was previously over-hyped.

The divergence between the EPS and the share price is quite notable, during the year. So it's easy to justify a look at some other metrics.

We don't see any weakness in the MSC Industrial Direct's dividend so the steady payout can't really explain the share price drop. The revenue trend doesn't seem to explain why the share price is down. Of course, it could simply be that it simply fell short of the market consensus expectations.

The graphic below depicts how earnings and revenue have changed over time (unveil the exact values by clicking on the image).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. If you are thinking of buying or selling MSC Industrial Direct stock, you should check out this free report showing analyst profit forecasts.

What About Dividends?

As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. We note that for MSC Industrial Direct the TSR over the last 1 year was -7.1%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

While it's certainly disappointing to see that MSC Industrial Direct shares lost 7.1% throughout the year, that wasn't as bad as the market loss of 22%. Longer term investors wouldn't be so upset, since they would have made 5%, each year, over five years. In the best case scenario the last year is just a temporary blip on the journey to a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider risks, for instance. Every company has them, and we've spotted 2 warning signs for MSC Industrial Direct you should know about.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.