2 Reasons to Like GWW (and 1 Not So Much)

Although the S&P 500 is down 2.4% over the past six months, W.W. Grainger’s stock price has fallen further to $1,088, losing shareholders 8.9% of their capital. This might have investors contemplating their next move.

Given the weaker price action, is this a buying opportunity for GWW? Find out in our full research report, it’s free.

Why Does GWW Stock Spark Debate?

Founded as a supplier of motors, W.W. Grainger (NYSE:GWW) provides maintenance, repair, and operating (MRO) supplies and services to businesses and institutions.

Two Things to Like:

1. Operating Margin Rising, Profits Up

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Looking at the trend in its profitability, W.W. Grainger’s operating margin rose by 5.1 percentage points over the last five years, as its sales growth gave it immense operating leverage. Its operating margin for the trailing 12 months was 15.3%.

2. Outstanding Long-Term EPS Growth

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

W.W. Grainger’s EPS grew at an astounding 18.1% compounded annual growth rate over the last five years, higher than its 8.1% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

One Reason to be Careful:

Slow Organic Growth Suggests Waning Demand In Core Business

We can better understand Maintenance and Repair Distributors companies by analyzing their organic revenue. This metric gives visibility into W.W. Grainger’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, W.W. Grainger’s organic revenue averaged 5.9% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations.

Final Judgment

W.W. Grainger has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 26.1× forward P/E (or $1,088 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.

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