ModernGraham Quarterly Valuation Of Fastenal Co.

Feb. 3.14 | About: Fastenal Company (FAST)

Now that the housing market is picking up, it can be easy to speculate that all companies related to construction will improve as well, but that would run counter to one of Benjamin Graham's greatest lessons, which is to avoid speculating when considering investments. Intelligent Investors must instead base their investment decisions on factual data, analyzing the historical performance of companies to determine what can be expected to occur in the future. This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company. By using the ModernGraham method, one can review a company's historical accomplishments and determine an intrinsic value that can be compared across industries. What follows is a specific look at how Fastenal fares in the ModernGraham valuation model.

FAST Chart

FAST data by YCharts

Defensive Investor - must pass at least 6 of the following 7 tests: Score = 5/7

  1. Adequate Size of Enterprise - market capitalization of at least $2 billion - PASS
  2. Sufficiently Strong Financial Condition - current ratio greater than 2 - PASS
  3. Earnings Stability - positive earnings per share for at least 10 straight years - PASS
  4. Dividend Record - has paid a dividend for at least 10 straight years - PASS
  5. Earnings Growth - earnings per share has increased by at least 1/3 over the last 10 years using 3 year averages at beginning and end of period - PASS
  6. Moderate PEmg ratio - PEmg is less than 20 - FAIL
  7. Moderate Price to Assets - PB ratio is less than 2.5 or PB x PEmg is less than 50 - FAIL

Enterprising Investor - must pass at least 4 of the following 5 tests or be suitable for a defensive investor: Score = 5/5

  1. Sufficiently Strong Financial Condition, Part 1 - current ratio greater than 1.5 - PASS
  2. Sufficiently Strong Financial Condition, Part 2 - Debt to Net Current Assets ratio less than 1.1 - PASS
  3. Earnings Stability - positive earnings per share for at least 5 years - PASS
  4. Dividend Record - currently pays a dividend - PASS
  5. Earnings growth - EPSmg greater than 5 years ago - PASS

Valuation Summary

Key Data:

MG Value $39.71
MG Opinion Overvalued
Value Based on 3% Growth $18.64
Value Based on 0% Growth $10.93
Market Implied Growth Rate 12.84%
Net Current Asset Value (NCAV) $3.79
PEmg 34.19
Current Ratio 5.53
PB Ratio 7.45
Click to enlarge

Balance Sheet - 9/30/2013

Current Assets $1,436,800,000
Current Liabilities $259,600,000
Total Debt $0
Total Assets $2,060,400,000
Intangible Assets $0
Total Liabilities $310,800,000
Outstanding Shares 296,740,000
Click to enlarge

Earnings Per Share

2013 $1.51
2012 $1.42
2011 $1.21
2010 $0.90
2009 $0.62
2008 $0.94
2007 $0.77
2006 $0.66
2005 $0.55
2004 $0.43
2003 $0.28
Click to enlarge

Earnings Per Share - ModernGraham

2013 $1.29
2012 $1.12
2011 $0.94
2010 $0.80
2009 $0.74
2008 $0.75
Click to enlarge

Dividend History

FAST Dividend Chart

FAST Dividend data by YCharts


Fastenal is a great company that should be on the radar of all Enterprising Investors. The company may not be suitable for Defensive Investors at the current time because it is trading at high PEmg and PB ratios, but the company passes all of the requirements of the Enterprising Investor. As a result, these investors seeking to follow Benjamin Graham's teachings should keep Fastenal on their watch lists as they compare the company to other investment opportunities, such as by reviewing some other companies that pass the ModernGraham requirements.

Looking at the company through the ModernGraham valuation model, the company has grown its EPSmg (normalized earnings) from $0.75 in 2008 to a $1.29 for 2013. This is a solid level of growth, but it lags behind the market's implied growth rate of 12.84%. As a result, the intrinsic value appears to be lower than the market's current price, and the company appears to be overvalued.

The next part of the analysis is up to individual investors, and requires discussion of the company's prospects. What do you think? What value would you put on Fastenal Co.? Where do you see the company going in the future? Is there a company you like better?

Disclosure: The author did not hold a position in Fastenal Co. (NASDAQ:FAST) or any of the other companies listed in this article at the time of publication and had no intention of changing that position within the next 72 hours.