Stock Analysis

Is There Now An Opportunity In MSC Industrial Direct Co., Inc. (NYSE:MSM)?

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NYSE:MSM
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While MSC Industrial Direct Co., Inc. (NYSE:MSM) might not be the most widely known stock at the moment, it 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. But what if there is still an opportunity to buy? Let’s take a look at MSC Industrial Direct’s outlook and value based on the most recent financial data to see if the opportunity still exists.

See our latest analysis for MSC Industrial Direct

Is MSC Industrial Direct Still Cheap?

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. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 14.05x is currently trading slightly above its industry peers’ ratio of 11.82x, which means if you buy MSC Industrial Direct today, you’d be paying a relatively sensible price for it. And if you believe that MSC Industrial Direct should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. In addition to this, it seems like MSC Industrial Direct’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s trading around the price multiples of other industry peers. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from MSC Industrial Direct?

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NYSE:MSM Earnings and Revenue Growth November 23rd 2022

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. With profit expected to grow by a double-digit 16% over the next couple of years, the outlook is positive for MSC Industrial Direct. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in MSM’s positive 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 conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on MSM, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for MSM, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing MSC Industrial Direct at this point in time. Every company has risks, and we've spotted 2 warning signs for MSC Industrial Direct you should know about.

If you are no longer interested in MSC Industrial Direct, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

What are the risks and opportunities for MSC Industrial Direct?

MSC Industrial Direct Co., Inc., together with its subsidiaries, distributes metalworking and maintenance, repair, and operations (MRO) products and services in the United States, Canada, Mexico, and the United Kingdom.

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Rewards

  • Price-To-Earnings ratio (14.1x) is below the US market (15.3x)

  • Earnings are forecast to grow 6.51% per year

Risks

  • Significant insider selling over the past 3 months

  • Has a high level of debt

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MSC Industrial Direct

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