Should You Be Adding MSC Industrial Direct (NYSE:MSM) To Your Watchlist Today?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

In contrast to all that, many investors prefer to focus on companies like MSC Industrial Direct (NYSE:MSM), which has not only revenues, but also profits. While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.

See our latest analysis for MSC Industrial Direct

How Quickly Is MSC Industrial Direct Increasing Earnings Per Share?

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. MSC Industrial Direct managed to grow EPS by 7.8% 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.

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$3.8b. That's progress.

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.

Fortunately, we've got access to analyst forecasts of MSC Industrial Direct's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

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, insiders are sometimes wrong, and we don't know the exact thinking behind their acquisitions.

While there was some insider selling, that pales in comparison to the US$15m that the Non-Executive Chairman, Mitchell Jacobson spent acquiring shares. The average price of which was US$72.41 per share. Big purchases like that are well worth noting, especially for those who like to follow the insider money.

Along with the insider buying, another encouraging sign for MSC Industrial Direct is that insiders, as a group, have a considerable shareholding. We note that their impressive stake in the company is worth US$817m. This totals to 16% of shares in the company. Enough to lead management's decision making process down a path that brings the most benefit to 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. For companies with market capitalisations between US$4.0b and US$12b, like MSC Industrial Direct, the median CEO pay is around US$7.9m.

MSC Industrial Direct offered total compensation worth US$6.5m to its CEO in the year to September 2022. That comes in below the average for similar sized companies and seems pretty reasonable. 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. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Does MSC Industrial Direct Deserve A Spot On Your Watchlist?

As previously touched on, MSC Industrial Direct is a growing business, which is encouraging. On top of that, we've seen insiders buying shares even though they already own plenty. That makes the company a prime candidate for your watchlist - and arguably a research priority. Still, you should learn about the 3 warning signs we've spotted with MSC Industrial Direct.

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.