The argument over what constitutes a fair premium for Fastenal (FAST)
has gone on for years, and it’s not about to be solved now. I will say,
though, that strong execution in a tougher market is a solid argument
for the bulls, particularly with Fastenal delivering better than
expected results in a third quarter marked by a more noticeable slowdown
in multiple key end-markets. Although industrial stocks in general have
been about as sluggish as I expected, Fastenal shares managed to do a
little better before spiking up after the strong third quarter results.
My
issue with Fastenal shares is pretty simple – I’m not willing to pay
around 16x forward EBITDA, nor buy into a valuation that seems to
require mid-teens annualized long-term FCF growth to deliver an
acceptable annualized return. I do expect key end-markets to slow
further, and I’m concerned about the non-residential pipeline once large
projects finish up. That said, I do expect Fastenal to remain a “best
of breed” in the industrial distribution sector for the foreseeable
future, and investors holding Fastenal today have likely long since made
their peace with the valuation issues.
Read more here:
Fastenal Delivers Superior Execution In A Weakening Market
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