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Fastenal Faces A Few Favorable Tailwinds Going Forward

Joseph Harry profile picture
Joseph Harry


  • Fastenal should benefit quite a bit from tax reform.
  • It could also benefit from increased construction and infrastructure spending.
  • Return on invested capital will likely see a boost.

Fastenal (NASDAQ:FAST) continues to carry what appears to be an elevated price tag, but it seems to always trade at an elevated multiple of its earnings, barring a major recession. Tax-reform has shifted the picture a little, however, especially considering the company's relatively high tax rate. This is a tailwind that the company can ride into its fiscal 2018, and also provides some relief to its P/E ratio - as the "E" in P/E is likely to automatically increase just from the tax savings.

Domestic focus provides more benefits than just taxes

The firm also looks like a good play on a potential ramp up in domestic US infrastructure spending, as well as construction. Its end markets are perfectly positioned for manufacturing growth as well.

https://static.seekingalpha.com/uploads/2018/3/8/2626451-15205281531330283.jpgSource: FAST 2017 Q4 earnings call slides

Fastenal's national reach likely gives it a competitive advantage due to scale, but in recent years, its store count has actually been declining. While this appears to be a worrying trend at first glance, the company has been more focused on expanding its total "in-market" locations by expanding its onsite locations.

Taking its declining public branches but increasing onsite locations together, its total presence through a combination of both is actually increasing:

https://static.seekingalpha.com/uploads/2018/3/8/2626451-15205372123124013.jpgSource: FAST 2017 10-K

One of the company's guiding principles is getting closer to the customer (it does mostly business-to-business sales), which it's traditionally done through its branch network. The company explains in its 10-K that:

In our view, this [expanding its branch network] has proved to be an efficient means of providing customers with a broad range of products and services on a timely basis. These branches have represented, and continue to represent, the foundation of our service approach. However, we are constantly evaluating the efficacy of our branch network, and in recent years, we have developed additional models that get us still closer to

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This article was written by

Joseph Harry profile picture
I write to transfer all the investment ideas and concepts cluttered in my head onto (digital) paper. This helps me evaluate them with more clarity, while also subjecting them to public scrutiny. I'm also currently a CFA candidate. I passed the level 1 exam in June 2015.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within 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.

Articles I write for Seeking Alpha represent my own personal opinion and should not be taken as professional investment advice. I am not a registered financial adviser. Due diligence and/or consultation with your investment adviser should be undertaken before making any financial decisions, as these decisions are an individual's personal responsibility.

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Comments (6)

Vahan Janjigian, CFA profile picture
Good article, but bad title. How does one "face" a tailwind. Isn't a tailwind behind you by definition? No offense, but just had to point this out!
Joseph Harry profile picture
Thanks Vahan,

Re-reading it, you're right and it definitely reads awkward. I think it might be a little too late to change it though.

Vahan Janjigian, CFA profile picture
No big deal. Just thought it was funny.
Wapiti19 profile picture
All FAST has done is copy GWW. They are the freshman practice squad of the varsity.
On just about any metric, FAST is better than GWW. And it's taking market share. GWW is trying to become more like Amazon: focusing on online, and lowering prices (and margins). FAST is trying to offer something unique.
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