MSC Industrial Direct Co., Inc. (NYSE:MSM), which is in the trade distributors business, and is based in United States, saw a decent share price growth in the teens level on the NYSE over the last few months. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on MSC Industrial Direct’s outlook and valuation to see if the opportunity still exists.
What is MSC Industrial Direct worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company’s price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that MSC Industrial Direct’s ratio of 10.13x is trading slightly below its industry peers’ ratio of 11.48x, which means if you buy MSC Industrial Direct today, you’d be paying a reasonable price for it. And if you believe MSC Industrial Direct should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Furthermore, MSC Industrial Direct’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.
Can we expect growth from MSC Industrial Direct?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a relatively muted profit growth of 1.3% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for MSC Industrial Direct, at least in the short term.
What this means for you:
Are you a shareholder? It seems like the market has already priced in MSM’s growth outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at MSM? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on MSM, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on MSC Industrial Direct. You can find everything you need to know about MSC Industrial Direct in the latest infographic research report. If you are no longer interested in MSC Industrial Direct, you can use our free platform to see my list of over 50 other stocks with a high growth potential.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
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