Fastenal Company (FAST) posted strong sales and rising margins for the quarter ended September 30, 2021.
I’m bullish on FAST. (See Insiders’ Hot Stocks on TipRanks)
Net sales of the wholesale distributor of industrial and construction supplies rose at an annual rate of 10% in Q3.
Most product lines grew mid-teens or better, while pre-tax and net income growth just about matched net sales.
“The third quarter of 2021 continued to experience strong growth in underlying demand for manufacturing and construction equipment and supplies, which drove higher unit sales that contributed to the increase in net sales that we experienced in the period,” said the company in its financial report.
Meanwhile, its gross profit margin increased 100 basis points to 46.3%, up from 45.3% a year earlier, due to more robust demand for its products and higher prices.
Wall Street’s Take
Wall Street hasn’t been that enthusiastic about Fastenal recently.
Over the last 12 months, its shares have gained 23.9%, well below the average industry gain of 49.7%.
TipRanks Smart Score system, which assigns a Smart Score of 4 out of 10 to its stock, has a couple of answers: decreased hedge fund activity, insider selling, and very negative investor sentiment.
The five analysts following Fastenal aren’t that excited about its stock either.
They rate it a Hold, with a high forecast of $65, and a low forecast of $45. The average Fastenal price target of $54.60 represents 1.2% downside potential.
Still, these analysts miss a few things about Fastenal: multiple moats, barriers to entry, which keep the competition off its market turf and help the company deliver superior investment returns.
As a result, Fastenal shares have beat the S&P 500 by a wide margin over the last three decades.
The first moat is scale, the large corporate-sized cost efficiencies — the Winona, Minn.-based company has 3,200 in-market locations in the U.S. and Mexico.
Then there’s scope, the cost efficiencies arising from offering many different products by a single corporation rather than several separate corporations; Fastenal sells hundreds of thousands of MRO, construction, and OEM products that stretch to 15 product lines.
There is also customization, the tailoring of products to customer reeds.
Still, there are a couple of more moats. Like bundling, the packaging of different products to create unique consumer offerings, and aggregation, the pulling of many orders together.
Compounding Fastenal’s moats is the integration of its supply chain activities. The company owns manufacturing facilities, a transportation fleet, distribution centers, inventory supply systems, and retailing and sales service facilities.
Simply put, Fastenal can be different things to different customers, as its site explains: “Fastenal is different things to different customers: a local relationship, a logistics company, a consultant, a technology solutions provider, and more generally, a distributor of wide-ranging industrial and construction products. However, these aspects of our service share a common foundation: great people, close to our customers, backed by world-class resources. As our capabilities continue to expand and evolve, this is what sets us apart in terms of service, growth, and value.”
Fastenal is well-positioned to survive and thrive, even in challenging environments, as its recent financial report confirms.
Disclosure: At the time of publication, Panos Mourdoukoutas owned shares of Fastenal.
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