DXP Enterprises, Inc. DXPE has been on a great run on the bourses lately as the stock is hovering at more than $100 per share. Shares of the maintenance, repair and operating (MRO) products distributor closed at $102.44 on Monday, near to its 52-week high of $107.06.

Over the past six months, the stock has surged 113.5%, outpacing the S&P 500 composite and the industry’s growth of 13.5% and 9.5%, respectively. The company has also outperformed other industry players like Ingersoll Rand Inc. IR and Xylem Inc. XYL, which have returned 4.4% and 2.9%, respectively, over the said time frame.

DXPE Stock Outperforms Industry, S&P 500 & Peers

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The stock is trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This reflects a positive market sentiment and confidence in the company's financial health and long-term prospects.

DXPE Shares Trading Above 50-Day and 200-Day SMA

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Factors Favoring DXP Enterprises

DXP Enterprises has been witnessing robust momentum in its Service Centers segment, which grew approximately 8% year over year in the third quarter of 2024. The segment’s performance has been driven by healthy demand for MRO products, equipment and integrated services, along with positive business mix and contributions from acquired assets. From a product perspective, strength in DXPE’s U.S. safety services and metalworking product divisions and Canadian rotating equipment unit holds promise for its long-term growth.

Robust momentum in the Innovative Pumping Solutions segment remains another growth catalyst for the company. Strong pipeline of projects in the energy, water and wastewater treatment markets has been the driving segment’s top line. Its performance has also been strengthened by an increase in prices from its vendors and suppliers, along with the contributions from acquisitions. Driven by strength across end markets, the segment’s revenues increased 52% in the third quarter.

DXP Enterprises stands to benefit from several large project wins in both energy and water end markets, from which it expects to recognize revenues starting from first-quarter 2025. The company’s healthy backlog level and modest volume growth across the energy, biofuels, food and beverage, and water and wastewater markets should drive its long-term growth.

The company intends to gain access to new customers, regions and product lines through buyouts. For instance, in February 2025, it acquired Arroyo Process Equipment, a leading distributor of pumps, process equipment, and related services. The buyout will augment DXPE’s portfolio of technical products and services and enhance its strategic presence in Florida.

Also, in November 2024, DXP Enterprises completed the acquisitions of Burt Gurney & Associates (“BGA”) and MaxVac Inc. The inclusion of BGA expanded the reach of DXPE’s Water division into a new geographic territory while MaxVac enhanced its vacuum pump capabilities. Acquisitions had a contribution of 6% to the company’s sales in the third quarter.

A Few Near-Term Concerns for DXPE

Despite the aforementioned growth opportunities, DXPE faces certain challenges that one should consider before investing in this stock. The company has been coping with the adverse impacts of high operating costs due to investments in inventory, product and business integration activities. In the third quarter of 2024, the cost of sales climbed 11.3% year over year. Also, in the first nine months of 2024, the metric increased 4%. Selling, general and administrative expenses increased 18.7% and 10.2% year over year in the third quarter and first nine months, respectively.

An increase in operating expenses, if not controlled, might adversely impact the company’s margins and profitability in the quarters ahead. Despite the recent signs of easing, lingering supply-chain disruptions have the potential to impede the company’s growth.

A high debt level remains another concern for DXP Enterprises. Exiting the third quarter of 2024, the company’s long-term debt was high at $519.3 million. Also, interest expenses in the first nine months of 2024 increased 30% on a year-over-year basis. Considering the company's high debt level, its cash and cash equivalents of $35 million do not look impressive. Exiting the third quarter, its long-term debt-to-capital ratio was pinned at 56.34%, much higher than the industry’s 35.60%.

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Stretched DXPE Stock Valuation Remains an Overhang

DXPE is trading at a forward 12-month price-to-earnings (P/E) ratio of 23.77X, higher than the industry average of 21.59X. Also, it is overvalued compared with its peer, The Middleby Corporation MIDD, which is trading at 17.10X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours.

DXPE Price-to-Earnings (Forward 12 Months)

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DXPE Earnings Estimate Revisions

Earnings estimates for the company have remained stable over the past 60 days. The consensus estimate for its 2024 earnings is pegged at $4.07 per share, indicating a decline of 0.5% year over year.

Find the latest earnings estimates and surprises on the Zacks Earnings Calendar.

Our Final Take

Solid momentum across the safety services, metalworking products and rotating equipment businesses, along with strength in the energy and wastewater treatment markets, positions DXP Enterprises favorably for growth in the quarters ahead. However, near-term challenges, such as escalating operating expenses, high debt level and premium valuation, are limiting this Zacks Rank #3 (Hold) company’s near-term prospects.

While current shareholders should hold their positions, new investors should wait for the stock to retract some of its recent gains and provide a better entry point.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Ingersoll Rand Inc. (IR) : Free Stock Analysis Report

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