Seeking Alpha
Long/short equity, insider ownership
Profile| Send Message|
( followers)  

In this article, I will feature one industrial stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

MSC Industrial Direct Co. (NYSE:MSM) markets and distributes metalworking, and maintenance, repair, and operations supplies primarily in the United States.

(click to enlarge)

Insider selling during the last 30 days

Here is a table of MSC Industrial's insider-trading activity during the last 30 days by insider.

NameTitleTrade DateShares SoldRule 10b5-1Current OwnershipDecrease In Ownership
Mitchell JacobsonDirectorJan 9-16155,004No6,430,993 shares2.4%
David SandlerExecutive Vice ChairmanJan 9-1535,490No215,065 shares14.2%
Erik GershwindCEOJan 9-1450,000No1,497,470 shares3.2%
Charles BonomoSVPJan 104,591No9,405 shares32.8%
Cristopher DavanzoVPJan 9-103,155No7,538 shares29.5%
Thomas CoxEVPJan 91,133No16,306 shares6.5%

There have been 249,373 shares sold by insiders during the last 30 days.

Insider selling by calendar month

Here is a table of MSC Industrial's insider-trading activity by calendar month.

MonthInsider selling / sharesInsider buying / shares
January 2014249,3730
December 201300
November 201315,0000
October 201300
September 201300
August 201357,8460
July 20134,3100
June 201300
May 2013348,1800
April 2013191,2660
March 201300
February 201300
January 201320,8770

There have been 886,852 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

MSC Industrial reported the fiscal 2014 first-quarter, which ended November 30, financial results on January 8 with the following highlights:

Revenue$678.5 million
Net income$59.0 million
Cash$48.4 million
Debt$322.0 million

(Source: Earnings presentation)

Outlook

MSC Industrial's fiscal 2014 second-quarter guidance is as follows:

Revenue$660-$672 million
EPS$0.83-$0.87

(click to enlarge)

(Source: Earnings presentation)

Competition

MSC Industrial's competitors include Applied Industrial Technologies (NYSE:AIT), and W.W. Grainger (NYSE:GWW). Here is a table comparing these companies.

CompanyMSMAITGWW
Market Cap:5.49B2.03B18.33B
Employees:4,8645,12421,100
Qtrly Rev Growth (yoy):0.040.030.06
Revenue:2.42B2.44B9.17B
Gross Margin:0.450.280.44
EBITDA:457.54M202.95M1.39B
Operating Margin:0.170.070.13
Net Income:248.61M117.92M728.81M
EPS:3.962.7710.29
P/E:22.3317.3425.66
PEG (5 yr expected):1.891.631.57
P/S:2.150.841.99

MSC Industrial has the highest P/S ratio among these three companies.

Here is a table of these competitors' insider-trading activities during the last 12 months.

CompanyInsider buying / sharesInsider selling / shares
AIT077,894
GWW

0

115,196

Only MSC Industrial has seen intensive insider selling during the last 30 days.

Conclusion

There have been six different insiders selling MSC Industrial, and there have not been any insiders buying MSC Industrial during the last 30 days. Three of these six insiders decreased their holdings by more than 10%. MSC Industrial has an insider ownership of 0.90%.

Before going short MSC Industrial, I would like to get a bearish confirmation from the Point and Figure chart. The two main reasons for the proposed short entry are relatively high P/S ratio, and the intensive insider-selling activity.

Source: MSC Industrial: 6 Different Insiders Have Sold Shares This Year