Full Valuation And A Timorous Recovery Aren't A Good Combo For Fastenal

While I liked short-cycle recovery plays earlier this year (and names like Parker Hannifin (PH) did pretty well), in recent months I’ve been getting more concerned that valuations were starting to overshoot the likely path of the recovery, setting the stage for potential disappointments and re-ratings. Fastenal’s (FAST) basically inline quarter and negative market reaction isn’t enough to claim “vindication” on that call, but with both Fastenal and Yaskawa (OTCPK:YASKY) seeing inconsistent recovery trends and large banks seeing soft C&I loan demand, I am concerned that shorter-cycle names could re-rate through the rest of the year.

Valuation is never an easy discussion with Fastenal, as a premier share-gaining company is worth a premium. So, I’m not surprised that the shares trade above a DCF-based fair value, though the implied long-term returns are worrisomely low. Looking at the typical premium Fastenal has enjoyed over the past three years, you can argue for a 17.5x multiple on forward EBITDA, but that only gets you to a fair value around $43.

 

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Full Valuation And A Timorous Recovery Aren't A Good Combo For Fastenal