Before the Call: Fastenal's Fast Track

If you want to fasten two things together, more than likely you'll be using the nuts, bolts, screws, washers, pins, and related equipment made by Fastenal (NASDAQ:FAST), a wholesale and retail store operator where contractors, engineering, and construction firms like MasTec, Fluor (NYSE:FLR), and Shaw Group (NYSE:SGR) can find the parts they need. Think of it as a huge hardware store that can serve as an inventory manager for contractors.

Fastenal is a leader in a niche market with competitors like W.W. Grainger (NYSE:GWW) and MSC Industrial Direct. Its sales results lately, while showing 13% growth last quarter, found same-store sales well below those achieved in prior years. The company has said that fuel costs took a toll last year, though they've abated some, but other issues surrounding inventories in stores have also hurt. Fastenal wants to move to an annual sales to accounts receivable and inventory ratio of 3 to 1 or greater, an historical level where it says it has achieved 20% after-tax returns on assets.

After earnings are released, we'll be able to wade through the data. Before then, though, let's review what investors think about it as a long-term investment. To get the pulse of the community, I've tapped into Motley Fool CAPS, where more than 60,000 investors have weighed in on 4,700 stocks, Fastenal among them. Here's what Fools have to say about the company.

Up or down?
Almost 400 CAPS investors shared their opinion on Fastenal, with 96% of them clamping themselves to the idea that the company will outperform the market. Equally impressive is the fact that while nearly one-third of them are considered All-Stars, CAPS players who consistently outperform their peers over time, 98% of the best of the best also believe Fastenal will be able to lock onto superior results.

Among companies that are considered peers of Fastenal, the company finds itself among the leaders:

Wall Street vs. Main Street
There are 10 analysts covering Fastenal, with seven of them bolting on a hold recommendation, while three have rated it a buy. Over on CAPS, though, three-quarters of the analysts we track rate the company as an outperform.

Sales are forecast to rise 13.5% to $520.9 million, in keeping with recent growth trends, while profits are expected to grow 14.5% to $0.39 per share, slightly better than last quarter's results.

Bull pitch
Fastenal bull eeprom sees the case as follows: "FAST has 10 years of 15-18% growth in sales and earnings. FAST's percent earned on equity has been increasing every year since 2002. The stock price has been flat for the past year, maybe due to decreasing housing demand. Its average P/E over the past 5 years is about 32. Right now the P/E is about 26. This company has a well-diversified product line in 2000 stores in North American and Asia. I think this company is a good investment for the next five years."

Bear pitch
Across the aisle, tbell2 is wondering where the competitive moat is. "When you need a specialty bolt, it would be nice not to be forced into buying a bag full when you only need one. I think this company has benefited from filling a much needed niche being ignored by the competition. However, I don't see a very big moat that would prevent a motivated competitor from entering."

My pitch
I find myself siding with the bulls on this company. While someone could come along and do the same thing, Fastenal has been doing this for 40 years and building a diversified base of stores not only in the U.S., but in Canada, too, and with new production facilities in China. That should help keep costs low but also provide a base to expand in a rapidly evolving economy.

Your pitch
Add your thoughts to those of the wise Fools above and explore the multitude of financial data that's been compiled on the company. Just click here.

USG is a recommendation of Motley Fool Inside Value. Headwaters is a recommendation of Motley Fool Rule Breakers.

Fool contributor Rich Duprey owns shares of USG but does not have a financial position in any of the other stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.