High-multiple stocks can often be more vulnerable to disappointments, but that hasn’t been the case for Fastenal (FAST). Despite three straight monthly misses on sales and a very slight negative downward trend in sell-side EPS expectations, the shares have held up well since my last article – appreciating another 10%-plus since then. That’s a little worse than the wider industrial sector, including the recovery star Parker-Hannifin (PH), and worse than Grainger (GWW) (which has risen more than 20% since the time of my last Fastenal article), but still better than the S&P 500.
The reopening/recovery of the U.S. manufacturing sector has been a little bumpy, and I wouldn’t be surprised if that is the case for the remainder of 2021, but I don’t see it as a major threat to Fastenal. The company continues to outgrow the underlying economy and there’s a potential path to better margins for at least the next year or two, as well as a growing revenue base as the company expands the reach of the business. Valuation is still problematic, but it’s tough to see how these shares would trade at conventionally cheap multiples without a serious market decline.
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