Fastenal: Relief Today, But Pressures Building

We're now at that point in the cycle where earnings pre-announcements in the industrial space are skewing negative, and with rates shooting up and basic materials companies starting to warn, concerns are growing that the economy is going to slow more significantly in 2023, possibly even into a mild 1990's-style recession. At the same time, data from the non-residential construction space is mixed at best.

None of this great for Fastenal (NASDAQ:FAST), as the company is a major supplier of fasteners, tools, and other components to manufacturing and non-residential customers. At the same time, price/cost seems to be turning, suggesting that gross margin leverage has peaked. It's not so surprising, then, that the shares had been drifting lower since my last update until a better-than-feared third quarter earnings report.

This is a tough time to get really bullish on Fastenal given those macro/sector pressures. I have no concerns or issues with the quality of Fastenal, and I believe efforts like customer-located sales and an ongoing shift away from traditional stores will benefit the company, but I don't think the Street is comfortable yet with the 2023-2024 outlook for manufacturing and non-residential construction. Given that, and the premium that the Street gives these shares, it's a name that I'd keep up-to-date on to take advantage of more pronounced pullbacks, but not one I'd jump into aggressively now.

 

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Fastenal: Relief Today, But Pressures Building