Over the past six months, W.W. Grainger’s shares (currently trading at $952.66) have posted a disappointing 8.7% loss, well below the S&P 500’s 19.5% gain. This may have investors wondering how to approach the situation.
Is now the time to buy W.W. Grainger, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free for active Edge members.
Why Is W.W. Grainger Not Exciting?
Even with the cheaper entry price, we're swiping left on W.W. Grainger for now. Here are three reasons you should be careful with GWW and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
We can better understand Maintenance and Repair Distributors companies by analyzing their organic revenue. This metric gives visibility into W.W. Grainger’s core business because it excludes one-time events such as mergers, acquisitions, and divestitures along with foreign currency fluctuations - non-fundamental factors that can manipulate the income statement.
Over the last two years, W.W. Grainger’s organic revenue averaged 4.9% year-on-year growth. This performance was underwhelming and suggests it may need to improve its products, pricing, or go-to-market strategy, which can add an extra layer of complexity to its operations. 
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 W.W. Grainger’s revenue to rise by 4.4%, close to its 8.7% annualized growth for the past five years. This projection doesn't excite us and suggests its newer products and services will not lead to better top-line performance yet.
3. Recent EPS Growth Below Our Standards
While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.
W.W. Grainger’s unimpressive 5.9% annual EPS growth over the last two years aligns with its revenue trend. This tells us it maintained its per-share profitability as it expanded.
Final Judgment
W.W. Grainger’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 22.5× forward P/E (or $952.66 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're fairly confident there are better investments elsewhere. We’d suggest looking at one of our all-time favorite software stocks.
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