Fastenal: The Greatest Investment I Never Made

| About: Fastenal Company (FAST)
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There are bucket lists and shopping lists, guest lists and honey-do lists, inventory lists and passenger lists, to-do lists and "You're on my list," lists. There are master lists which are nothing more than lists of lists. The Bill of Rights? What's the big deal, it's just another list. I could make a list, of the lists, I'm not listing. Lists are therapeutic. When we put something on a list, we feel as though we've accomplished something. Since we are so enamored of lists, why not a personal stupidity list? You know what I mean. A "What's this button for?" or "Don't worry, that's not poison ivy," kind of list. My list would be a long one, and right near the top would be, "I've never bought a single share of Fastenal (NASDAQ:FAST) stock."

If you don't mind, I'd like to get this painful fact out of the way forthwith. A $10,000 investment in FAST 5 years ago is worth a cool $30,000 today. Okay, that didn't hurt as much as I thought it would.

Fastenal got its start in the nuts and bolts business. Pretty high-tech, eh? That was in 1967. In 1987 the company went public at $9 a share and finished the year at $15 a share. 1987 stock market crash? What crash?

Fastenal has blossomed a bit since its early days. Along with nearly 500,000 types of fasteners, the company sells tools, storage products, cutting tool blades, hydraulic equipment, accessories for plumbing, heating and air conditioning, janitorial supplies and paint. The company peddles power tools, chemicals and electrical supplies; let me catch my breath; office supplies, welding supplies, lifts and safety supplies. There's much, much more, but this is starting to look suspiciously like a list. By the way, there's a rumor that some of the paint FAST offer comes in polka-dot. I think it's just a rumor.

Whether it's a common fastener for your widget stamping machine, or a special left-handed hydraulic thingamajig for your construction company's compactor, Fastenal can fix you up. This little anecdote will illustrate why this is such a unique company.

One Thursday in the 1990s an assembly line at a Ford plant broke down. The repair required a few dozen special bolts so Ford called their regular supplier. The supplier told them that it would be late Monday before they could get the bolts to the plant. This idled line was costing Ford (NYSE:F) about $50,000 per hour. Hmmmmm. Do the math. Ford called Fastenal and lo and behold, FAST didn't have the bolts either! Everybody took a deep breath and then Fastenal asked Ford to fax them a blueprint of the affected machine. They studied the blueprint, manufactured the needed parts and sent them off to Ford. The line was running by Sunday. Customers big and small remember things like that.

At the end of 2012, FAST had 2,652 stores in all 50 states and around the world. The company opened 80 new stores in 2012 and closed 13. This year, they plan between 65 and 80 new store openings. These stores tend to be located in low-rent districts. I can attest to this. There is a Fastenal outlet in my hometown that occupies a rather shabby building that sits in an even shabbier neighborhood. That's alright, they're not selling designer clothes and besides, cheap rent makes for fatter margins.

If you walk into a Fastenal store and they don't have what you need, it will be in your hands in 24 hours, guaranteed. 14 distribution centers and a fleet of trucks makes this possible. This kind of service comes at a premium that most customers are willing to pay.

FAST installs vending machines in its customers' facilities. These machines are stocked with everything from gloves to cutting tools. Customers love these machines. They are automatically replenished, the customer only pays for the product when it's vended, and the machines help reduce "shrinkage." Shrinkage, isn't that a kind word? These machines cut waste and improve efficiency which in turn puts more dollars in the cigar box.

Speaking of dollars, Fastenal is loaded. Their quick ratio is 2.7 and their current ratio stands at over 6. They consistently return 20% or more on equity without an ounce of debt. The dividend yield is a ho-hum .79%. I thought of whining about this until I remembered what the stock has returned in the last 5 years. I'll keep my mouth shut.

Here's a quick and interesting fact. In 2012, fasteners comprised 42% of Fastenal's sales. It's not just nuts and bolts, folks, and I think that's important point to remember.

At the time of these scribblings, FAST shares are trading hands at around $51. That translates to 38 times earnings which is on the high side of the company's historic range. Too expensive? Maybe. You could wait for a pullback and then leap in. In fact, a pullback of any significance would be a great buying opportunity.

Expensive or not, I'm taking a position in Fastenal. In fact, I'm going to put it right at the top of my li__. Scratch that. Suffice to say, I'm a buyer.

Now it's time to put the real brains to work. Check out Fastenal and get back to me.


Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in FAST over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.