Fastenal has followed the market’s trajectory closely, rising in tandem with the S&P 500 over the past six months. The stock has climbed by 10.9% to $48.10 per share while the index has gained 7.1%.
Is now a good time to buy FAST? Find out in our full research report, it’s free.
Why Does Fastenal Spark Debate?
Founded in 1967, Fastenal (NASDAQ: FAST) provides industrial and construction supplies, including fasteners, tools, safety products, and many other product categories to businesses globally.
Two Positive Attributes:
1. Elite Gross Margin Powers Best-In-Class Business Model
At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.
Fastenal has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 45.4% gross margin over the last five years. That means Fastenal only paid its suppliers $54.59 for every $100 in revenue.
2. Increasing Free Cash Flow Margin Juices Financials
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
As you can see below, Fastenal’s margin expanded by 5.1 percentage points over the last five years. This is encouraging, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability was flat. Fastenal’s free cash flow margin for the trailing 12 months was 13.2%.
One Reason to Be Careful:
New Investments Fail to Bear Fruit as ROIC Declines
A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).
On average, Fastenal’s ROIC decreased by 1.4 percentage points annually each year over the last few years. Only time will tell if its new bets can bear fruit and potentially reverse the trend.
Final Judgment
Fastenal’s positive characteristics outweigh the negatives. At $48.10 per share (or 36× forward P/E), is now the time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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