WESCO trades at $338.80 per share and has stayed right on track with the overall market, gaining 14.5% over the last six months. At the same time, the S&P 500 has returned 10.8%.
Is there a buying opportunity in WESCO, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is WESCO Not Exciting?
We’re cautious about WESCO. Here are three reasons why there are better opportunities than WCC, plus one stock we’d rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. WESCO’s recent performance shows its demand has slowed as its annualized revenue growth of 6.8% over the last two years was below its five-year trend. We’re wary when companies in the sector see decelerations in revenue growth, as it could signal changing consumer tastes aided by low switching costs. 
2. Low Gross Margin Reveals Weak Structural Profitability
All else equal, we prefer higher gross margins because they make it easier to generate more operating profits and indicate that a company commands pricing power by offering more differentiated products.
WESCO has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 21.5% gross margin over the last five years. Said differently, WESCO had to pay a chunky $78.51 to its suppliers for every $100 in revenue.
3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential
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.
WESCO has shown poor cash profitability relative to peers over the last five years, giving the company fewer opportunities to return capital to shareholders. Its free cash flow margin averaged 1.5%, below what we’d expect for an industrials business.
Final Judgment
WESCO isn’t a terrible business, but it doesn’t pass our quality test. That said, the stock currently trades at 18.5× forward P/E (or $338.80 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of our top digital advertising picks.
Stocks We Like More Than WESCO
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