MSC Industrial has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 5.4% to $86.39 per share while the index has gained 5.4%.

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?

We're cautious about MSC Industrial. Here are three reasons why we avoid MSM and a stock we'd rather own.

1. Core Business Falling Behind as Demand Declines

In addition to reported revenue, organic revenue is a useful data point for analyzing Maintenance and Repair Distributors companies. 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 3.5% 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 Is Slim

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 rise by 3.5%. While this projection suggests its newer products and services will spur 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 5.6% annually over the last five years while its revenue grew by 2.6%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

We see the value of companies helping their customers, but in the case of MSC Industrial, we’re out. That said, the stock currently trades at 22.7× forward P/E (or $86.39 per share). This multiple tells us a lot of good news is priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward the most entrenched endpoint security platform on the market.

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