Distribution Solutions Group (DSGR) AI Stock Analysis

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Distribution Solutions Group

(NASDAQ:DSGR)

60Neutral

Distribution Solutions Group's strong revenue growth and strategic acquisitions are significant positives, as is its stable balance sheet. However, negative net income and valuation concerns, alongside technical indicators suggesting potential downside, temper the overall outlook. Earnings call insights suggest potential for growth, but challenges in certain segments need addressing.

Positive Factors

Customer Relationships

Management noted that the expansion of existing customer relationships benefited Gexpro Services’ growth.

Revenue Performance

Q4/24 revenue increased 18.6% YOY to $480.5 million, which exceeded estimates and consensus.

Segment Performance

The Gexpro Services segment was the standout performer in Q4/24, with revenue increasing 28.9% YOY, driven by demand recovery in technology and renewable energy markets.

Negative Factors

Market Conditions

The broader industrial demand backdrop remains sluggish, as the ISM Manufacturing Index has been in contraction territory throughout 2023 and YTD in 2024.

Segment Challenges

Lawson Products segment revenue was down -10.9% YOY on an organic basis due to lower military orders and disruptions from a new order entry system.

Distribution Solutions Group (DSGR) vs. S&P 500 (SPY)

Market Cap

$1.26B

Dividend YieldN/A

Average Volume (3M)63.16K

Price to Earnings (P/E)760.6

Beta (1Y)0.85

Revenue Growth14.88%

EPS Growth9.87%

CountryUS

Employees4,400

SectorIndustrials

Sector Strength61

IndustryIndustrial - Distribution

Share Statistics

EPS (TTM)-0.16

Shares Outstanding46,558,914

10 Day Avg. Volume70,243

30 Day Avg. Volume63,165

Financial Highlights & Ratios

PEG RatioN/A

Price to Book (P/B)N/A

Price to Sales (P/S)0.74

Price to Cash Flow (P/CF)7.30

P/FCF Ratio0.00

Enterprise Value/Market CapN/A

Enterprise Value/RevenueN/A

Enterprise Value/Gross ProfitN/A

Enterprise Value/EbitdaN/A

Forecast

1Y Price Target

$44.00

Price Target Upside67.24% Upside

Rating ConsensusModerate Buy

Number of Analyst Covering2

Distribution Solutions Group Business Overview & Revenue Model

Company DescriptionDistribution Solutions Group (DSGR) is a prominent company operating in the distribution and supply chain management sector. The company specializes in delivering a wide range of products and services, including industrial and construction supplies, to various industries. With a focus on efficiency and reliability, DSGR offers tailored solutions that help businesses optimize their operations and reduce downtime.

How the Company Makes MoneyDSGR makes money primarily through the sale and distribution of industrial and construction supplies. The company sources products from manufacturers and sells them to businesses in need of these materials, earning revenue through the markup on these goods. Key revenue streams include direct sales to companies in industries such as manufacturing, construction, and logistics. Additionally, DSGR may have significant partnerships with manufacturers and suppliers that enable them to offer competitive pricing and ensure product availability. Factors such as long-term contracts with clients and an extensive distribution network further contribute to its earnings.

Distribution Solutions Group Financial Statement Overview

Summary

Distribution Solutions Group shows robust revenue growth and a stable balance sheet with low leverage. However, the negative net income and resulting profitability margins need improvement. The strong cash flow provides a solid foundation for future investments and growth opportunities. Addressing profitability challenges will be crucial for enhancing overall financial performance.

Income Statement

Positive

Distribution Solutions Group demonstrated a healthy revenue growth rate of 14.9% in the latest year, continuing its upward trajectory from previous years. However, the company reported a negative net income, leading to a negative net profit margin, which is a concern. Gross profit margin stands at 34%, indicating operational efficiency. EBIT and EBITDA margins are modest at 3.1%, reflecting potential areas for profitability improvement.

Balance Sheet

Positive

The company has a manageable debt-to-equity ratio of 0.21, showing a conservative leverage approach. Stockholders' equity has grown over the years, with an equity ratio of 37.1%, indicating financial stability. However, the return on equity is negative due to the current net loss, which could be a risk if not addressed.

Cash Flow

Positive

Free cash flow is positive, although it has decreased from the previous year by 44.9%. Operating cash flow remains strong, with a healthy operating cash flow to net income ratio, suggesting efficient cash generation from operations. The company's investment activities have been substantial, potentially positioning it for future growth.

Dec 2024	Dec 2023	Dec 2022	Dec 2021	Dec 2020
Breakdown
Income Statement		Total Revenue
1.80B	1.57B	1.15B	417.73M	351.59M
	Gross Profit
613.77M	551.88M	390.90M	219.24M	186.54M
	EBIT
55.95M	42.99M	41.79M	4.45M	14.74M
	EBITDA
55.95M	104.36M	82.42M	30.68M	28.14M
	Net Income Common Stockholders
-7.33M	-8.97M	7.41M	9.41M	15.11M
Balance Sheet		Cash, Cash Equivalents and Short-Term Investments
66.48M	83.93M	24.55M	4.18M	28.39M
	Total Assets
1.73B	1.55B	1.22B	256.16M	256.30M
	Total Debt
137.19M	649.05M	461.97M	27.21M	10.31M
	Net Debt
70.71M	565.12M	437.42M	23.03M	-18.09M
	Total Liabilities
1.09B	888.73M	652.62M	123.15M	133.88M
	Stockholders Equity
640.54M	661.60M	563.00M	133.01M	122.42M
Cash Flow		Free Cash Flow
42.77M	77.61M	-31.13M	-2.74M	30.84M
	Operating Cash Flow
56.45M	102.29M	-11.03M	5.45M	32.53M
	Investing Cash Flow
-229.68M	-278.52M	-126.69M	-41.19M	-3.99M
	Financing Cash Flow
159.30M	250.41M	148.46M	10.66M	-5.77M

Distribution Solutions Group Technical Analysis

Technical Analysis Sentiment

Negative

Last Price26.31

Price Trends

50DMA

29.44

Negative

100DMA

32.99

Negative

200DMA

34.21

Negative

Market Momentum

MACD

-0.61

Positive

RSI

41.14

Neutral

STOCH

23.81

Neutral

Evaluating momentum and price trends is crucial in stock analysis to make informed investment decisions. For DSGR, the sentiment is Negative. The current price of 26.31 is below the 20-day moving average (MA) of 28.13, below the 50-day MA of 29.44, and below the 200-day MA of 34.21, indicating a bearish trend. The MACD of -0.61 indicates Positive momentum. The RSI at 41.14 is Neutral, neither overbought nor oversold. The STOCH value of 23.81 is Neutral, not indicating any strong overbought or oversold conditions. Overall, these indicators collectively point to a Negative sentiment for DSGR.

Distribution Solutions Group Risk Analysis

Distribution Solutions Group disclosed 32 risk factors in its most recent earnings report. Distribution Solutions Group reported the most risks in the “Finance & Corporate” category.

Finance & Corporate - Financial and accounting risks. Risks related to the execution of corporate activity and strategy

Latest Risks Added 0 New Risks

Distribution Solutions Group Peers Comparison

Overall Rating

UnderperformOutperform

Sector (62)

Financial Indicators

Name	Overall Rating	Market Cap	P/E Ratio	ROE	Dividend Yield	Revenue Growth	EPS Growth
DXPE	76 Outperform	$1.28B	19.26	17.54%	―	7.35%	9.35%
AIT	74 Outperform	$8.90B	23.48	22.70%	0.68%	0.37%	3.52%
GWW	71 Outperform	$46.50B	24.78	58.98%	0.85%	4.19%	6.60%
MSM	68 Neutral	$4.19B	19.79	15.53%	4.47%	-5.71%	-31.93%
GIC	68 Neutral	$855.49M	14.15	22.49%	4.52%	3.26%	-14.20%
Sector *	62 Neutral	$7.68B	13.06	3.21%	3.34%	3.62%	-14.40%
DSGR	60 Neutral	$1.26B	760.60	-1.13%	―	14.88%	9.87%

* Industrials Sector Average

Performance Comparison

DSGR

Distribution Solutions Group

26.31

-7.65

-22.53%

AIT

Applied Industrial Technologies

220.68

29.27

15.29%

DXPE

DXP Enterprises

78.12

23.21

42.27%

MSM

MSC Industrial

75.72

-13.26

-14.90%

GIC

Global Industrial Company

21.87

-18.95

-46.42%

GWW

WW Grainger

960.69

2.07

0.22%

Distribution Solutions Group Earnings Call Summary

Earnings Call Date: Mar 6, 2025 | % Change Since: -5.19% | Next Earnings Date: May 1, 2025

Earnings Call Sentiment Neutral

The earnings call presented a mix of positive developments and challenges. While revenue growth and strategic acquisitions have bolstered the company's financial standing, significant issues such as declines in military sales and challenges in Canadian operations have posed hurdles. However, the overall progress towards strategic goals and improved margins in some segments suggest potential for future growth.

Highlights

Revenue Growth and Strategic Acquisitions

DSG reported revenue of $1.8 billion for fiscal 2024, up almost 15%, primarily driven by strategic acquisitions. Trailing twelve-month total revenues were approximately $1.95 billion.

Adjusted Free Cash Flow Surge

Adjusted free cash flow grew to $175 million, doubling the company's revenues and generating an incremental $100 million of adjusted EBITDA over three fiscal years.

Strong Performance in Gexpro Services

Gexpro Services saw fourth quarter revenue growth of 27.4% from $93.2 million to $118.8 million, primarily from organic expansion, with total organic sales up 26.8% from the previous year.

Improved Margins at Test Equity Group

Test Equity Group’s adjusted EBITDA for the quarter was $14.8 million or 7.8% of sales, up from 6.2% in the prior year quarter.

Operational Efficiency and Liquidity

DSG ended the quarter with approximately $473 million in net working capital and $335 million of liquidity, including $82 million of cash and cash equivalents.

Lowlights

Decline in Military Sales

Lawson’s military sales were down over 50% for the full year 2024, placing significant pressure on Lawson’s total sales.

Sales Rep Turnover at Lawson Products

Lawson reduced its sales force from about 1,020 to approximately 830 by mid-2024, which impacted revenue growth.

Margin Pressure from Source Atlantic

Source Atlantic acquisition had a 50 basis point impact on DSG’s margin profile in the fourth quarter.

Challenges in Canadian Operations

The Canada branch segment's adjusted EBITDA was 7.2% of sales, with operational initiatives focused on acquisition integration, including pricing disciplines and branch consolidation.

Challenging Market Conditions for Test Equity

Hisco continues to face weaker sales in key supplier categories, with average order sizes declining over the last two years.

Company Guidance

During the Distribution Solutions Group's fourth quarter 2024 earnings call, several key metrics were highlighted by CEO Bryan King. The company reported a revenue increase of nearly 15% year-over-year, reaching $1.8 billion, driven by strategic acquisitions. The trailing twelve-month total revenues, including pre-acquisition figures, were approximately $1.95 billion. Adjusted free cash flow grew to $175 million, and adjusted EBITDA was $44.9 million, or 9.3% of sales. The Canada branch division, newly reported, contributed $59 million in sales. Gexpro Services saw a revenue increase of 27.4%, while Test Equity Group's adjusted EBITDA rose to $14.8 million, or 7.8% of sales. The company maintained a strong balance sheet with $473 million in net working capital and $335 million in liquidity, ending the quarter with a debt leverage ratio of 3.5 times. Additionally, the company anticipates capital expenditures of $20 million to $25 million in 2025 and achieved a trailing twelve-month cash flow conversion of approximately 100%, leading to a return on invested capital (ROIC) of roughly 11%.

Glossary

OutperformA stock rated as "Outperform" is expected to perform better than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock is likely to deliver higher returns compared to the average returns of other stocks in the same sector or market index. Investors might consider this stock a good buying opportunity.

NeutralA stock rated as "Neutral" is expected to perform in line with the overall market or a specific benchmark. This rating indicates that the stock is neither particularly attractive nor unattractive for investment. Investors may consider holding onto the stock, as it is not expected to either significantly outperform or underperform the market.

UnderperformA stock rated as "Underperform" is expected to perform worse than the overall market or a specific benchmark over the near-to-medium term. This rating suggests that the stock may deliver lower returns compared to the average returns of other stocks in the same sector or market index. Investors might consider selling the stock or avoiding it as an investment.

Disclaimer

This AI Analyst Stock Report is automatically generated by our AI systems using advanced algorithms and publicly available financial, technical, and market data. While the information provided aims to be accurate and insightful, it is intended for informational purposes only and should not be considered financial advice. Any content created by an AI (Artificial Intelligence) system may contain inaccuracies and/or contain errors. Investing in stocks carries inherent risks, and past performance is not indicative of future results. This report does not account for your personal financial circumstances, objectives, or risk tolerance. Always conduct your own research or consult with a qualified financial advisor before making investment decisions. The analysis and recommendations provided are based on historical and current data and may not fully reflect future market conditions or unexpected developments. Neither the creators of this report nor its affiliated entities guarantee the accuracy, completeness, or reliability of the information presented. Use this report at your own discretion and risk.