Nasdaq: FAST
$40.53 (as of 12/17/07 )
P/E 27.5	PSR 3.2
ROE 23.6%	DIV. 1.10%
Debt/Eq. 0
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December 18, 2007 - Fastenal (Nasdaq:FAST) sells threaded fasteners--screws, nuts, and bolts--along with other industrial and construction supplies. Fastenal's business is tied to the manufacturing sector, so don't mistake this as a housing-related supplies company that would be feeling the pain of that area of the economy. Indeed, Fastenal continues to deliver strong earnings and the prospects for future growth remain worthy of excitement from investors.

Along with fasteners and construction supplies, Fastenal sells tools and offers tool-sharpening services. Its customers are mostly small industrial companies, some of which order customized fasteners either made or modified by Fastenal to meet the customers exact needs. The company has established such a reputation for dependability and customer service that it can charge premium prices and sustain exceptional profit margins. Net profit margins have held impressively in the area of 11% for many, many years now.

Fastenal operates a fast-growing chain of just over 2,000 stores. These are not like Home Depot superstores located in urban and suburban areas. Fastenal stores are much smaller and are usually located in small communities on the outskirts of manufacturing areas, where the cost of land and operations are much lower. Store staffing is lean, though in the past several years the company has stepped up its hiring rate to support an expanded product line.  The company sells over 200,000 different types of industrial and construction supplies.  

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Selling custom-made screws may not sound too exciting but Fastenal is a fast growing, highly profitable company.  Even through weaker economic periods it has performed impressively. The company has built a reputation for long-term growth in sales and profits in the neighborhood of 20%+ annually (EPS CAGR of 29% over the past 5 years). The company is a few years into expansion mode currently, opening 13% to 18% new stores each year.

The consensus is for EPS growth of 16% to $1.53 this year, followed by $1.82 in 2008.  Revenue is seen at $2.06 billion this year and $2.38 billion next.  The average growth rate over the next five years is seen at 19%.  This is a big, and fast-growing company.  

Selling screws is not for everyone, but Fastenal has demonstrated impressive profitability and growth characteristics that many investors seek. This business is pleasantly devoid of the hyper-short product cycles and ever-changing environment faced by high-tech companies.  Moreover, Fastenal seems to fly under the radar regarding some of the worries that have destabilized other stocks lately. As long as the manufacturing sector is healthy this company is in prime position to benefit.

- James Hale

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