MSC Industrial trades at $80.97 per share and has stayed right on track with the overall market, losing 5.2% over the last six months while the S&P 500 is down 2.1%. This may have investors wondering how to approach the situation.
Is there a buying opportunity in MSC Industrial, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Do We Think MSC Industrial Will Underperform?
Despite the more favorable entry price, we don't have much confidence in MSC Industrial. Here are three reasons why there are better opportunities than MSM and a stock we'd rather own.
1. Core Business Falling Behind as Demand Declines
Investors interested in Maintenance and Repair Distributors companies should track organic revenue in addition to reported revenue. This metric gives visibility into MSC Industrial’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, MSC Industrial’s organic revenue averaged 2.6% year-on-year declines. This performance was underwhelming and implies it may need to improve its products, pricing, or go-to-market strategy. It also suggests MSC Industrial might have to lean into acquisitions to grow, which isn’t ideal because M&A can be expensive and risky (integrations often disrupt focus). 
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect MSC Industrial’s revenue to stall. Although this projection indicates its newer products and services will catalyze better top-line performance, it is still below the sector average.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for MSC Industrial, its EPS declined by 4.5% annually over the last five years while its revenue grew by 2.5%. This tells us the company became less profitable on a per-share basis as it expanded.
Final Judgment
MSC Industrial falls short of our quality standards. Following the recent decline, the stock trades at 20.5× forward P/E (or $80.97 per share). This valuation tells us a lot of optimism is priced in - we think there are better investment opportunities out there. We’d recommend looking at a top digital advertising platform riding the creator economy.
Stocks We Would Buy Instead of MSC Industrial
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