With a daily loss of -9.63%, a 3-month loss of -10.72%, and an Earnings Per Share (EPS) of 0.58, Distribution Solutions Group Inc (DSGR, Financial) appears to be significantly undervalued. This article aims to provide a comprehensive analysis of DSGR's valuation and answer the question: Is the stock really undervalued?
Company Introduction
Distribution Solutions Group Inc is an industrial distributor of maintenance and repair supplies. The company operates three segments: Lawson, TestEquity, and Gexpro Services, with the TestEquity segment being the main revenue driver. The segment distributes test and measurement equipment and solutions, electronic production supplies, and tool kits from leading manufacturer partners, supporting various industries including technology, aerospace, defense, automotive, electronics, education, and medical.
DSGR's current stock price is $24.2, while its GF Value stands at $34.62, indicating a potential undervaluation. The following analysis will delve deeper into the company's value.
Understanding GF Value
The GF Value is a proprietary measure representing the current intrinsic value of a stock. It is calculated based on historical multiples (PE Ratio, PS Ratio, PB Ratio, and Price-to-Free-Cash-Flow), a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $24.2 per share, Distribution Solutions Group stock shows every sign of being significantly undervalued.
Because Distribution Solutions Group is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to understand its financial strength.
Distribution Solutions Group has a cash-to-debt ratio of 0.07, which ranks worse than 83.92% of 143 companies in the Industrial Distribution industry. The overall financial strength of Distribution Solutions Group is 5 out of 10, which indicates that the financial strength of Distribution Solutions Group is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Distribution Solutions Group has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $1.40 billion and Earnings Per Share (EPS) of $0.58. Its operating margin is 4.65%, which ranks worse than 60.27% of 146 companies in the Industrial Distribution industry. Overall, the profitability of Distribution Solutions Group is ranked 7 out of 10, which indicates fair profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Distribution Solutions Group is18.4%, which ranks better than 82.27% of 141 companies in the Industrial Distribution industry. The 3-year average EBITDA growth rate is 39.7%, which ranks better than 82.54% of 126 companies in the Industrial Distribution industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Distribution Solutions Group's return on invested capital is 3.67, and its cost of capital is 7.34.
Conclusion
In summary, the stock of Distribution Solutions Group (DSGR, Financial) shows every sign of being significantly undervalued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 82.54% of 126 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
