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In this updated coverage research report, we reexamine the industrials sector company MSC Industrial Direct Co., Inc. — MSM 0.00%↑ — to see if it continues to meet QualityValue Investing’s (QVI) Real-Time Stock Picks criteria based on our proprietary checklist analysis of the business’s current wealth and the share price’s present value.
MSC Industrial Direct Co. | Current Wealth
Value Proposition
MSC Industrial Direct Co., Inc. is a dividend-paying small-cap stock in the industrials sector’s trading companies and distributors industry. It was added to the QVI Real-Time Stock Picks on November 9, 2022, at a cost basis of $76.52 per share, adjusted for dividends paid in cash.
MSC Industrial Direct Co., Inc., together with its subsidiaries, engages in the distribution of metalworking and maintenance, repair, and operations (MRO) products and services in the United States, Canada, Mexico, the United Kingdom, and internationally. The company serves individual machine shops, manufacturing companies, and government agencies. MSC Industrial Direct Co., Inc. was founded in 1941 and is headquartered in Melville, New York. USA.
Economic Moat
Morningstar assigns MSC Industrial Direct Co. a narrow moat rating based on its cost advantages, which allows it to generate excess returns. The company has a history of fending off competitive pressures in the maintenance, repair, and operations (MRO) market.
QVI’s Value Proposition Elevator Pitch for MSM
MSC Industrial Direct Co. is an underfollowed small-cap company that distributes products and services for metalworking, including maintenance, repair, and operations. It has a long history of growth and profitability.
QVI’s value proposition rating for MSC Industrial Direct Co.: Bullish.
Returns on Management
Revenue Growth and Net Profit Margin
As the table below shows, MSC Industrial Direct’s trailing three-year annualized revenue growth was mid-single-digit positive but lagged behind the S&P 500’s topline growth of +16.60%. In contrast, the company’s negative revenue growth of -4.70% underperformed the broader market’s +18.90% increase for the most recently reported twelve months.
Further down the income statement, MSC Industrial Direct had a positive mid-digit net profit margin from a 41.16% gross margin, underperforming the S&P 500’s net profit of 20.90% from a gross margin of 54.10%.
Returns on Equity and Invested Capital
MSC Industrial Direct’s senior management produced a return on equity, or ROE, that aligned with QVI’s targeted threshold but trailed the S&P 500’s ROE of 56.40%.
Stock buyback programs can elevate ROE. During 2023-24, MSM’s board of directors executed about $330 million in share repurchases.
MSC Industrial Direct’s return on invested capital, or ROIC, aligned with QVI’s threshold while lagging the broader market’s 23.60% return. In addition, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are adequate capital allocators (Source of WACC: GuruFocus).
QVI’s business fundamentals rating for MSC Industrial Direct Co.: Bullish.
Click or Pinch Out to Expand
Next, we’ll examine the company’s enterprise downside risks, the stock price’s present value, including share price downside risks, and the investment thesis, all exclusive to Quality Value Investing’s premium (paying) subscribers.
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Unless noted, all data presented is sourced from Charles Schwab & Co., Yahoo Finance, and MSC Industrial Direct Co. as of the market and close on December 20, 2024, and is intended for illustration purposes only.
Disclosure: As of the date of this research report, I/we hold no beneficial positions in MSM common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.
Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider, as appropriate, consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.
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