Fastenal has been treading water for the past six months, recording a small loss of 3.5% while holding steady at $40.19. The stock also fell short of the S&P 500’s 13.1% gain during that period.
Is there a buying opportunity in Fastenal, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Fastenal Not Exciting?
We're swiping left on Fastenal for now. Here are three reasons there are better opportunities than FAST and a stock we'd rather own.
1. Lackluster Revenue Growth
We at StockStory place the most emphasis on long-term growth, but within industrials, a stretched historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Fastenal’s recent performance shows its demand has slowed as its annualized revenue growth of 4.8% over the last two years was below its five-year trend. 
2. EPS Barely Growing
Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Fastenal’s unimpressive 7.9% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Fastenal’s margin dropped by 1.2 percentage points over the last five years. If its declines continue, it could signal increasing investment needs and capital intensity. Fastenal’s free cash flow margin for the trailing 12 months was 12.1%.
Final Judgment
Fastenal isn’t a terrible business, but it doesn’t pass our bar. With its shares lagging the market recently, the stock trades at 33.7× forward P/E (or $40.19 per share). At this valuation, there’s a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d recommend looking at one of our all-time favorite software stocks.
Stocks We Like More Than Fastenal
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