Fastenal Company (FAST - Get Rating) is engaged in the wholesale distribution of industrial and construction supplies. The company offers fasteners, including threaded fasteners, bolts, nuts, screws, studs, and others.

It also offers miscellaneous supplies and hardware, including pins, machinery keys, concrete anchors, metal framing systems, wire ropes, strut products, and other accessories. It serves the original equipment manufacturers; the maintenance, repair, operations, and non-residential construction market.

Given the strong demand for manufacturing and construction equipment and supplies, FAST’s revenue and earnings grew year-over-year in the second quarter ended June 30, 2022. The company had to undertake price increases in order to offset the rising costs. The price increases for fasteners and transportation services helped drive a 6.6% to 6.9% growth in sales, respectively.

The company said it had not undertaken broad price increases in the second quarter but benefitted from the price increases during the first quarter. FAST’s CEO Dan Florness said, “Demand remained generally healthy, but there were certain signs of softening that emerged in May and June.”

FAST is facing product and transportation cost inflation, but the company said it would take action to mitigate the effects of the rising costs.

However, the stock has declined 23.8% in price year-to-date and 10.1% over the past year to close the last trading session at $48.76. It is currently trading 24.7% below its 52-week high of $64.75, which it hit on December 30, 2021.

Here’s what could influence FAST’s performance in the upcoming months:

Robust Financials

FAST net sales increased 18% year-over-year to $1.77 billion for the second quarter ended June 30, 2022. The company’s gross profit increased 18.1% year-over-year to $827.60 million. Also, its net earnings increased 19.8% year-over-year to $287.10 million. In addition, its EPS came in at $0.50, representing an increase of 19.7% year-over-year.

Favorable Analyst Estimates

Analysts expect FAST’s EPS for fiscal 2022 and 2023 to increase 16.5% and 4.1% year-over-year to $1.86 and $1.94, respectively. Its revenue for fiscal 2022 and 2023 is expected to increase 14.8% and 4.8% year-over-year to $6.91 billion and $7.24 billion, respectively. It surpassed consensus EPS estimates in each of the trailing four quarters.

Higher-than-industry Profitability

In terms of trailing-12-month gross profit margin, FAST’s 46.49% is 57.1% higher than the 29.59% industry average. Likewise, its 1.50% trailing-12-month asset turnover ratio is 89.7% higher than the industry average of 0.79%. Furthermore, the stock’s trailing-12-month levered FCF margin and EBITDA margin came in at 5.72% and 23.37%, compared to the industry averages of 3.18% and 13.04%, respectively.

Stretched Valuation

In terms of forward EV/S, FAST’s 4.13x is 157.5% higher than the 1.60x industry average. Likewise, its 17.81x forward EV/EBITDA is 75.9% higher than the 10.13x industry average. And the stock’s 8.41x forward P/B is 240% higher than the 2.47x industry average.

POWR Ratings Reflect Uncertainty

FAST has an overall rating of C, equating to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. FAST has a D grade for Value, consistent with its stretched valuation.

It has a B grade for Quality, in sync with its 15.70% trailing-12-month net income margin, 134.7% higher than the 6.69% industry average.

FAST is ranked #46 out of 91 stocks in the B-rated Industrial – Equipment industry. Click here to access FAST’s Growth, Momentum, Stability, and Sentiment ratings.

Bottom Line

FAST had managed to offset the rising costs by undertaking price increases during the first quarter. With inflation at a 41-year high, demand is expected to take a hit, and costs are expected to surge further.

The stock is trading below its 50-day and 200-day moving average of $50.96 and $55.81, respectively, indicating a downtrend. Also, the stock is trading at a stretched valuation. So, it could be wise to wait for a better entry point in the stock.

How Does Fastenal Company (FAST) Stack Up Against its Peers?

While FAST has an overall POWR Rating of C, you might want to consider investing in the following Industrial – Equipment stocks with an A (Strong Buy) or B (Buy) rating: Preformed Line Products Company (PLPC - Get Rating), Standex International Corporation (SXI - Get Rating), and Applied Industrial Technologies, Inc. (AIT - Get Rating).

FAST shares were unchanged in premarket trading Friday. Year-to-date, FAST has declined -23.05%, versus a -15.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Dipanjan Banchur

Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets. More...

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