Fastenal's Familiar 'Strong Growth / High Expectations' Profile

Fastenal (FAST) has long been an interesting case study in the question of just how much investors should pay for growth, as this company has long been a growth leader in the industrial distribution space, and the shares have typically sported a hefty valuation. Arguing for the case of “valuation always matters sooner or later”, Fastenal’s long-term returns (10 to 15 years) aren’t that exceptional relative to the S&P 500, though the company has more or less kept pace with Grainger (GWW) and outperformed MSC Industrial (MSM).

I don’t really have too many doubts about Fastenal’s ability to continue to grow by expanding into adjacent product markets and growing its vending and onsite operations. I also don’t think that the shares are all that unreasonably priced relative to the market’s prevailing willingness to pay for given levels of margin and returns in the industrial sector. Still, given the changing competitive dynamic in the industrial distribution sector and the mediocre long-term returns implied by discounted cash flow, this isn’t a compelling idea for me now.

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Fastenal's Familiar 'Strong Growth / High Expectations' Profile