WESCO currently trades at $274.20 and has been a dream stock for shareholders. It’s returned 215% since April 2021, blowing past the S&P 500’s 57.8% gain. The company has also beaten the index over the past six months as its stock price is up 28.9%.
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 happy investors have made money, but we're cautious about WESCO. Here are three reasons we avoid WCC and a stock we'd rather own.
1. Slow Organic Growth Suggests Waning Demand In Core Business
Investors interested in Maintenance and Repair Distributors companies should track organic revenue in addition to reported revenue. This metric gives visibility into WESCO’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, WESCO’s organic revenue averaged 4% 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. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for WESCO, its EPS declined by 5.9% annually over the last two years while its revenue grew by 2.5%. This tells us the company became less profitable on a per-share basis as it expanded.
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. With its shares beating the market recently, the stock trades at 16.5× forward P/E (or $274.20 per share). While this valuation is reasonable, 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 one of our top software and edge computing picks.
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