MSA Safety has followed the market’s trajectory closely. The stock is down 9.6% to $157.51 per share over the past six months while the S&P 500 has lost 5.8%. This might have investors contemplating their next move.
Is there a buying opportunity in MSA Safety, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is MSA Safety Not Exciting?
Even with the cheaper entry price, we're cautious about MSA Safety. Here are three reasons why you should be careful with MSA and a stock we'd rather own.
1. Fewer Distribution Channels than Larger Competitors
With $1.82 billion in revenue over the past 12 months, MSA Safety is a mid-sized business services company, which sometimes brings disadvantages compared to larger competitors benefiting from better economies of scale. On the bright side, it can still flex high growth rates because it’s working from a smaller revenue base.
2. Projected Revenue Growth Is Slim
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect MSA Safety’s revenue to rise by 2.6%, a deceleration versus its 6.7% annualized growth for the past two years. This projection is underwhelming and suggests its products and services will face some demand challenges.
3. Free Cash Flow Margin Stuck in Neutral
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, MSA Safety’s margin was unchanged over the last five years, showing it couldn’t improve. Its free cash flow margin for the trailing 12 months was 14%.
Final Judgment
MSA Safety’s business quality ultimately falls short of our standards. After the recent drawdown, the stock trades at 19× forward P/E (or $157.51 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. Let us point you toward the Amazon and PayPal of Latin America.
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