Here's Why We Think MSC Industrial Direct (NYSE:MSM) Is Well Worth Watching

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it currently lacks a track record of revenue and profit. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in MSC Industrial Direct (NYSE:MSM). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

View our latest analysis for MSC Industrial Direct

How Quickly Is MSC Industrial Direct Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. That makes EPS growth an attractive quality for any company. Over the last three years, MSC Industrial Direct has grown EPS by 10% per year. That growth rate is fairly good, assuming the company can keep it up.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for MSC Industrial Direct remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 14% to US$3.9b. That's encouraging news for the company!

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of MSC Industrial Direct's forecast profits?

Are MSC Industrial Direct Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

While there was some insider selling, that pales in comparison to the US$15m that the Non-Executive Chairman, Mitchell Jacobson spent acquiring shares. We should note the average purchase price was around US$72.41. Insider buying like this is a rare occurrence and should stoke the interest of the market and shareholders alike.

The good news, alongside the insider buying, for MSC Industrial Direct bulls is that insiders (collectively) have a meaningful investment in the stock. Notably, they have an enviable stake in the company, worth US$899m. This totals to 18% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to shareholders. Looking very optimistic for investors.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because MSC Industrial Direct's CEO, Erik Gershwind, is paid at a relatively modest level when compared to other CEOs for companies of this size. For companies with market capitalisations between US$4.0b and US$12b, like MSC Industrial Direct, the median CEO pay is around US$8.4m.

The MSC Industrial Direct CEO received US$6.5m in compensation for the year ending September 2022. That comes in below the average for similar sized companies and seems pretty reasonable. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.

Does MSC Industrial Direct Deserve A Spot On Your Watchlist?

As previously touched on, MSC Industrial Direct is a growing business, which is encouraging. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. Of course, just because MSC Industrial Direct is growing does not mean it is undervalued. If you're wondering about the valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of MSC Industrial Direct, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.