On September 26, 2023, Distribution Solutions Group Inc (DSGR, Financial) recorded a daily gain of 2.27%, marking a 0.59% increase over the past three months. The company's Earnings Per Share (EPS) stands at $0.58. The question that begs an answer is: Is the stock modestly undervalued? This article aims to delve into the valuation analysis of Distribution Solutions Group, providing insightful details to help you make informed investment decisions.
Company Introduction
Distribution Solutions Group Inc is a key player in the industrial distribution of maintenance and repair supplies. The company operates through three segments: Lawson, TestEquity, and Gexpro Services, with TestEquity contributing significantly to its revenue. The company serves diverse sectors, including technology, aerospace, defense, automotive, electronics, education, and medical industries.
As of the last trading session, the company's stock was priced at $25.22 per share, with a market cap of $1.20 billion. When compared with the company's GF Value of $34.31, the stock appears to be modestly undervalued. The following analysis will provide a more comprehensive understanding of the company's intrinsic value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is computed based on historical trading multiples, a GuruFocus adjustment factor reflecting the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the stock's fair trading value.
According to our calculations, Distribution Solutions Group (DSGR, Financial) stock is modestly undervalued. If the stock's price is significantly above the GF Value Line, it indicates overvaluation, and the future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, the future return will likely be higher. Given that Distribution Solutions Group is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Therefore, it's crucial to carefully review a company's financial strength before deciding to buy its stock. A good starting point is to look at the cash-to-debt ratio and interest coverage. Distribution Solutions Group has a cash-to-debt ratio of 0.07, which ranks lower than 84.35% of the companies in the Industrial Distribution industry. GuruFocus ranks the overall financial strength of Distribution Solutions Group at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, carries less risk. Distribution Solutions Group has been profitable 6 out of the past 10 years. Over the past twelve months, the company generated a revenue of $1.40 billion and Earnings Per Share (EPS) of $0.58.
Furthermore, growth is a critical factor in a company's valuation. GuruFocus research indicates that growth is closely correlated with the long-term performance of a company's stock. Distribution Solutions Group's 3-year average revenue growth rate is better than 82.64% of companies in the Industrial Distribution industry. The company's 3-year average EBITDA growth rate is 39.7%, ranking better than 83.72% of companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can also help evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If ROIC exceeds WACC, the company is likely creating value for its shareholders. Over the past 12 months, Distribution Solutions Group's ROIC and WACC were 3.67 and 7.85, respectively.
Conclusion
In summary, the stock of Distribution Solutions Group (DSGR, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 83.72% of 129 companies in the Industrial Distribution industry. To learn more about Distribution Solutions Group stock, you can check out its 30-Year Financials here.
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