Is Now The Time To Put MSC Industrial Direct (NYSE:MSM) On Your Watchlist?

It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. Unfortunately, these high risk investments often have little probability of ever paying off, and many investors pay a price to learn their lesson. While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

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.

Check out the opportunities and risks within the US Trade Distributors industry.

How Fast Is MSC Industrial Direct Growing?

If a company can keep growing earnings per share (EPS) long enough, its share price should eventually follow. That makes EPS growth an attractive quality for any company. MSC Industrial Direct managed to grow EPS by 5.2% per year, over three years. While that sort of growth rate isn't anything to write home about, it does show the business is growing.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. 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$3.7b. 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.

While we live in the present moment, there's little doubt that the future matters most in the investment decision process. So why not check this interactive chart depicting future EPS estimates, for MSC Industrial Direct?

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. That's because insider buying often indicates that those closest to the company have confidence that the share price will perform well. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

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. It's not often you see purchases like this and so it should be on the radar of everyone who follows MSC Industrial Direct.

On top of the insider buying, it's good to see that MSC Industrial Direct insiders have a valuable investment in the business. Notably, they have an enviable stake in the company, worth US$806m. That equates to 17% of the company, making insiders powerful and aligned with other shareholders. So there is opportunity here to invest in a company whose management have tangible incentives to deliver.

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. The median total compensation for CEOs of companies similar in size to MSC Industrial Direct, with market caps between US$2.0b and US$6.4b, is around US$6.7m.

MSC Industrial Direct offered total compensation worth US$5.2m to its CEO in the year to August 2021. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Should You Add MSC Industrial Direct To Your Watchlist?

One important encouraging feature of MSC Industrial Direct is that it is growing profits. In addition, insiders have been busy adding to their sizeable holdings in the company. That makes the company a prime candidate for your watchlist - and arguably a research priority. What about risks? Every company has them, and we've spotted 2 warning signs for MSC Industrial Direct you should know about.

Keen growth investors love to see insider buying. Thankfully, MSC Industrial Direct isn't the only one. You can see a a free list of them here.

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.