Looking for a Growth Stock? 3 Reasons Why MSC Industrial (MSM) is a Solid Choice
MSC Industrial (MSM) possesses solid growth attributes, which could help it handily outperform the market.
Growth stocks are attractive to many investors, as above-average financial growth helps these stocks easily grab the market's attention and produce exceptional returns. However, it isn't easy to find a great growth stock.
That's because, these stocks usually carry above-average risk and volatility. In fact, betting on a stock for which the growth story is actually over or nearing its end could lead to significant loss.
However, it's pretty easy to find cutting-edge growth stocks with the help of the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company's real growth prospects.
Our proprietary system currently recommends MSC Industrial (MSM) as one such stock. This company not only has a favorable Growth Score, but also carries a top Zacks Rank.
Research shows that stocks carrying the best growth features consistently beat the market. And returns are even better for stocks that possess the combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy).
While there are numerous reasons why the stock of this distributor of industrial tools and supplies is a great growth pick right now, we have highlighted three of the most important factors below:
Earnings growth is arguably the most important factor, as stocks exhibiting exceptionally surging profit levels tend to attract the attention of most investors. And for growth investors, double-digit earnings growth is definitely preferable, and often an indication of strong prospects (and stock price gains) for the company under consideration.
While the historical EPS growth rate for MSC Industrial is 3.1%, investors should actually focus on the projected growth. The company's EPS is expected to grow 20% this year, crushing the industry average, which calls for EPS growth of 0%.
Impressive Asset Utilization Ratio
Asset utilization ratio -- also known as sales-to-total-assets (S/TA) ratio -- is often overlooked by investors, but it is an important indicator in growth investing. This metric exhibits how efficiently a firm is utilizing its assets to generate sales.
Right now, MSC Industrial has an S/TA ratio of 1.37, which means that the company gets $1.37 in sales for each dollar in assets. Comparing this to the industry average of 0.96, it can be said that the company is more efficient.
In addition to efficiency in generating sales, sales growth plays an important role. And MSC Industrial is well positioned from a sales growth perspective too. The company's sales are expected to grow 11% this year versus the industry average of 0%.
Promising Earnings Estimate Revisions
Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.
There have been upward revisions in current-year earnings estimates for MSC Industrial. The Zacks Consensus Estimate for the current year has surged 2.7% over the past month.
While the overall earnings estimate revisions have made MSC Industrial a Zacks Rank #2 stock, it has earned itself a Growth Score of B based on a number of factors, including the ones discussed above.
This combination indicates that MSC Industrial is a potential outperformer and a solid choice for growth investors.
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MSC Industrial Direct Company, Inc. (MSM): Free Stock Analysis Report
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