Over the past six months, MSC Industrial’s stock price fell to $80.29. Shareholders have lost 7.8% of their capital, disappointing when considering the S&P 500 was flat. 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? Get the full breakdown from our expert analysts, it’s free.
Even though the stock has become cheaper, we're cautious about MSC Industrial. Here are three reasons why there are better opportunities than MSM and a stock we'd rather own.
Why Do We Think MSC Industrial Will Underperform?
Founded in NYC’s Little Italy, MSC Industrial Direct (NYSE: MSM) provides industrial supplies and equipment, offering vast and reliable selection for customers such as contractors
1. Core Business Falling Behind as Demand Plateaus
We can better understand Maintenance and Repair Distributors companies by analyzing their organic 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 failed to grow its organic revenue. 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 accelerate growth, 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, close to its flat sales for the past two years. This projection is underwhelming and suggests its newer products and services will not catalyze better top-line performance yet.
3. EPS Trending Down
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Sadly for MSC Industrial, its EPS declined by 3.2% 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
We cheer for all companies making their customers lives easier, but in the case of MSC Industrial, we’ll be cheering from the sidelines. Following the recent decline, the stock trades at 21.4× forward price-to-earnings (or $80.29 per share). This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere. We’d suggest looking at the most entrenched endpoint security platform on the market.
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