Please ensure Javascript is enabled for purposes of website accessibility

Why Fastenal Stock Jumped 16% in April

By Reuben Gregg Brewer – May 6, 2020 at 9:45AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The industrial parts supplier has held up pretty well in the face of COVID-19, helped along by its diversified business.

What happened

Shares of industrial parts supplier Fastenal Company (FAST -2.00%) rose 16% in April according to data from S&P Global Market Intelligence, edging slightly ahead of the 13% or so gain of the S&P 500 index. The stock started to move steadily ahead of the broader market following its earnings release on April 14, but the relatively good news in that report shouldn't have been a surprise. 

So what

Fastenal provided monthly sales updates throughout the first quarter. Each month saw a top-line increase in the low-to-mid single digits. However, the big change came in March, when the company broke out its safety equipment sales. Fasteners, the industrial firm's namesake product line, saw a 10% drop in daily sales in March while safety came in with a 31% increase ("other" was down 2.5%). All in, the overall results were still positive, showing the inherent benefits of diversification.   

A pile of nuts and bolts.

Image source: Getty Images.

It shouldn't have been much of a surprise to see first-quarter earnings come in with a 4.4% year-over-year top-line advance and a bottom-line gain of 4%. Given the spreading impact of COVID-19, those are pretty strong results. Investors should be impressed. April sales results, released on May 6, showed a continuation of the trend, with overall sales up a solid 6.7% year over year driven by the safety business' 120% sales gain.

However, the decline in the fasteners business steepened, with a year-over-year drop of 22.5% in April, and the "other" business also fell more, dipping 10%. This is a decidedly mixed picture. The safety business only represented 18% of the company's sales in 2019. These are uncertain times and it's far from clear how long this one business can sustain Fastenal's overall results. The U.S. is highly likely to fall into a recession, if it isn't already in one, so investors are only just starting to see the impact here -- and it could get worse before it gets better. 

Now what

So far, Fasental has done a good job of weathering the hit from the economic shutdowns related to COVID-19. Still, long-term investors shouldn't expect that trend to continue, as the company's safety business probably isn't large enough to keep offsetting the declines being experienced in other parts of the company. All in, it seems prudent to expect choppy waters ahead as the world, and Fastenal, continues to adjust to the impact of the coronavirus.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool recommends Fastenal. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Fastenal Company Stock Quote
Fastenal Company
$46.64 (-2.00%) $0.95

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/29/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.