Investors Love a Story – the Fastenal Saga Makes it Best Stock of Last 25 Years

Even if Fastenal (FAST) shares weren’t up almost 40,000% since the 1987 market crash, its heartwarming story of simple products – literally, nuts and bolts – often manufactured right here in the Good Old U.S. of A., would make it a stock with a story.

Fastenal Company Stock Chart

Fastenal Company Stock Chart by YCharts

But it’s also a productivity machine, making its factories and its retail outlets increasingly efficient, and that, too, has helped land Fastenal on lists of best-performing companies. A recent BusinessWeek article shined Fastenal up, and by all accounts deservedly, noting its best-stock-performance-since-the-1987-crash status.

The improving economy should put further wind in the company's sails, given Fastenal's reliance on the manufacturing and non-residential construction industries, which are expected to continue expanding after a pause mid-year 2011. Be warned: Fastenal's success does command a premium. Its PE of 43 is double that of its competitors W.W. Grainger (GWW) and MSC Industries Direct (MSM).

Fastenal Company PE Ratio Chart

Fastenal Company PE Ratio Chart by YCharts

But Fastenals margins are better than its rivals, too.

Fastenal Company Profit Margin Chart

Fastenal Company Profit Margin Chart by YCharts

With the economy picking up, Fastenal is returning to one of its main growth drivers, opening new stores that sell Fastenal and other products to the manufacturing, construction and other industries. After a slowdown in 2009, Fastenal added 250 in the past couple of years and plans to add another 150 to 200 in 2012 to its 2,585-store chain.

The timing of these openings should propel the company's top-line growth over the next several years. Fastenal says new stores hit their peak sales numbers when they're two to three years old. And Fastenal will have a relatively large number hitting that age in the next year or so. Sales rose 22% in 2011 to $2.77 billion after gaining almost 18% in 2010 over a sluggish 2009.

And it’s more than growth for growth’s sake: Fastenal has improved the efficiency of its business. Now, per-store revenue need only be around $100,000 to $110,000 per month to hit Fastenal’s goal of having earnings before taxes be 23% of sales. Before, per-store sales needed to hit $125,000 per month to achieve that margin.

Another potential propellant to Fastenal stock: the Purchasing Managers Index, a measure of manufacturing strength and one the company uses as a benchmark, is resuming its upward trajectory.

Fastenal Company Stock Chart

Fastenal Company Stock Chart by YCharts

Michael McHugh is an editor for the YCharts Pro Investor Service which includes professional stock charts, stock ratings, stock screener and portfolio strategies.

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