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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