W.W. Grainger trades at $914.93 per share and has stayed right on track with the overall market, losing 11.1% over the last six months while the S&P 500 is down 13.8%. This was partly due to its softer quarterly results and might have investors contemplating their next move.
Following the pullback, is this a buying opportunity for GWW? Find out in our full research report, it’s free.
Why Are We Positive On GWW?
Founded as a supplier of motors, W.W. Grainger (NYSE: GWW) provides maintenance, repair, and operating (MRO) supplies and services to businesses and institutions.
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 6.7 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 15.4%.
2. Outstanding Long-Term EPS Growth
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
W.W. Grainger’s EPS grew at an astounding 20.6% compounded annual growth rate over the last five years, higher than its 8.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.
3. New Investments Bear Fruit as ROIC Jumps
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, W.W. Grainger’s ROIC has increased significantly over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.
Final Judgment
These are just a few reasons W.W. Grainger is a high-quality business worth owning. With the recent decline, the stock trades at 21.9× forward price-to-earnings (or $914.93 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.
Stocks We Like Even More Than W.W. Grainger
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