Thursday, July 16, 2015

Seeking Alpha: Fastenal Caught Up In The Distributor Slowdown

When your business revolves around supplying manufacturing and construction companies with (literally) nuts and bolts, your fate is always going to be tied to the underlying health of the manufacturing sector. That's a problem for Fastenal (NASDAQ:FAST), as well as other industrial MRO distributors like MSC Industrial (NYSE:MSM), Grainger (NYSE:GWW), and Applied Industrial Technologies (NYSE:AIT), as various metrics of industrial and manufacturing activity have weakened in response to a softer export market, a weak domestic energy market, and still-sluggish construction activity.

Pricing power seems to be almost non-existent in the distributor space right now, and that's going to continue to pressure gross margin. Fastenal has done a good job of offsetting this with tight expense management elsewhere in the business, but nothing will help as much as a solid upturn in underlying manufacturing and construction activity. As for the shares, they have long carried a premium due to the company's above-average growth, but they haven't really outperformed MSC Industrial by all that much over the last five years and they've actually underperformed over the last three (and both have underperformed Grainger and AIT). I still don't like the price today and would rather play an industrial recovery through other names.

Click this link to continue:
Fastenal Caught Up In The Distributor Slowdown

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