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Stock Analysis - Fastenal Co. (NASDAQ:FAST)
Although I have a backlog of reader requests, I am still trying to get through my own Rule #1 list. I do promise to get to each and every request, but today, I want to take a look at the next company on my list - Fastenal Co. It trades on the NYSE under the symbol FAST.
Company Profile:
From Yahoo Finance
Fastenal Company, together with its subsidiaries, engages in the sale of industrial and construction supplies. The company offers threaded fasteners, such as bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies, such as paints, various pins and machinery keys, concrete anchors, batteries, sealants, metal framing systems, wire ropes, struts, private-label stud anchors, rivets, and related accessories. These products are used in manufactured products and building projects, and in the maintenance and repair of machines and structures. It also provides various tools and equipment; cutting tools and abrasives; hydraulics, pneumatics, plumbing, and HVAC products; material handling, storage, and packaging products; janitorial supplies, chemical, and paints; electrical supplies; welding supplies; safety supplies; and metals, alloys, and materials.
Market capitalization is $7.31B.
Financial Analysis:
The return on invested capital is an interesting bowl shape! By that I mean that management was delivering ROIC in the mid twenties early in the decade. Then for 3 years in the middle, they delivered acceptable ROIC in the mid teens. And now management has gotten the ROIC up to the low 20s. The 5 year average ROIC is 18.90%. This definitely meets our Rule #1 investor minimum of 10% and I like seeing the trend coming back up.
Return on equity is interesting. The 10 year average is 20.21%. The 5 year average is 18.16%. And last year, the ROE was 21.65%. It looks as though Fastenal has brought its ROE back to its historical average which is a very good thing. With no debt on the books, the ROIC and ROE are almost identical.
Equity growth rate has decreased but remains stable. Over the 10 year period, the equity growth rate was 20.29%. Over 5 years, it drops to 16.77%. And it remains steady: over 3 years at 16.87% and last year at 17.56%. Although a Rule #1 investor prefers to see an increasing trend, a stable trend is acceptable.
Earnings per share growth rate has been pretty steady in the mid 20% range except for 3 notable exceptions. However, the growth rate has been consistent over time. Over 9 years, the EPS growth rate is almost 17%. Over 5 years, it increases to 26.54%. It climbs even higher over 3 years at 32.91% before coming back down to Earth last year at 20%.
Sales growth rates have been steady in the 17-18% range.
Cash flow growth rates have been similarly steady in the high teens!
From the fundamentals, I would argue that it is a Rule #1 stock. Although there was a slight dip in the middle of the 10 year period, all Big Five look strong and stable.
Stock Analysis:
Determining the future P/E was easy. Fastenal has historically maintained a very tight P/E. The 10 year average is 32.17, the 5 year average is 33.20, and the current P/E is 33.32! Looks like the most conservative P/E comes in at 32.17.
Looking to the historical equity growth rate to determine my future EPS growth rate, I see that the most conservative growth rate is the 5 year average at 16.77%. Analysts have forecast 19% EPS growth rate. My estimate is pretty close, but I will go with my more conservative estimate.
With this information, I am able to calculate a sticker price of $53.20. To determine my MOS price, I simply pay 50 cents on the dollar and come up with $26.60. At the current price of $47.32, FAST is currently selling at a discount of 11% to the sticker price. Unfortunately, that means that it is selling at a premium of almost 78% to the MOS price.
Compare your calculations with mine.
Here is a stock price chart that shows that Fastenal was sitting at around $35 not that long ago (April11).Ā And it has had another significant move just a few days ago jumping from $42 to its current price!
Conclusion:
From the analysis of the Big Five, I think we have a Rule #1 stock. It may not be as pretty as some of the other members of our Rule #1 stocks, but it gives us another solid company to watch.
However, even Warren Buffett would agree that it is expensive. FAST’s earnings yield is only 3.00% as compared to the 10 year US bond which delivers 5.19%. Mr. Buffett has always said that the earnings yield of the company should be higher than a bond.Ā And from the chart, we can see what a massive move this stock has had over the last 3 months.
What is your opinion of Fastenal Co?
Full Disclosure: I do not own any shares of FAST.
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It looks like a fairly solid company but I wouldn’t buy at the current price… P/E is too high.
What sites and/or programs do you use to find the 10 year values?
July 17th, 2007 at 3:59 pmThis stock has historically traded in this very tight P/E range over the last 10 years. So the P/E seems reasonable for this particular company.
For finding the average P/E values, one of my favourite sites is ADVFN Financials.
You can choose a company, look at the Financials, and you will get 10 years (or more) of data. One of the data elements they have is normalized high P/E ratio and the normalized low P/E ratio.
I take the average of these two extremes. And I use these numbers to calculate the 10 year and 5 year averages.
July 17th, 2007 at 9:25 pmI’ve owned shares in Fastenal since January so I’ve been waiting to see your evaluation of the company. I think the EPS growth rate is going to accelerate more than you have allowed for since they are reducing cap-ex and increasing the number of sales people.
July 18th, 2007 at 11:05 am