It hasn't been a great morning session for Fastenal investors, who have watched their shares sink by -1.3% to a price of $66.55. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
The Market May Be Overvaluing Fastenal's Earnings and Assets:
Fastenal Company, together with its subsidiaries, engages in the wholesale distribution of industrial and construction supplies in the United States, Canada, Mexico, North America, and internationally. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.15 and an average price to book (P/B) ratio of 3.11. In contrast, Fastenal has a trailing 12 month P/E ratio of 33.1 and a P/B ratio of 10.9.
Fastenal's PEG ratio is 5.15, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Wider Gross Margins Than the Industry Average of 34.38%:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $4,965 | $5,334 | $5,647 | $6,011 | $6,981 | $7,347 |
| Gross Margins | 48% | 47% | 45% | 46% | 46% | 46% |
| Net Margins | 15% | 15% | 15% | 15% | 16% | 16% |
| Net Income (M) | $752 | $791 | $859 | $925 | $1,087 | $1,155 |
| Net Interest Expense (M) | $13 | $14 | $10 | $10 | $14 | $11 |
| Depreciation & Amort. (M) | $134 | $145 | $153 | $160 | $166 | $167 |
| Diluted Shares (M) | 574 | 574 | 576 | 577 | 576 | 573 |
| Earnings Per Share | $1.31 | $1.38 | $1.49 | $1.6 | $1.89 | $2.02 |
| EPS Growth | n/a | 5.34% | 7.97% | 7.38% | 18.12% | 6.88% |
| Avg. Price | $23.89 | $29.34 | $38.65 | $50.94 | $53.06 | $66.55 |
| P/E Ratio | 18.24 | 21.26 | 25.77 | 31.64 | 28.07 | 32.95 |
| Free Cash Flow (M) | $498 | $596 | $934 | $614 | $767 | $1,260 |
| CAPEX (M) | $176 | $246 | $168 | $157 | $174 | $173 |
| EV / EBITDA | 12.42 | 14.11 | 17.29 | 21.4 | 19.18 | 22.47 |
| Total Debt (M) | $503 | $348 | $445 | $450 | $757 | $320 |
| Net Debt / EBITDA | 0.3 | 0.14 | 0.15 | 0.16 | 0.33 | 0.06 |
| Current Ratio | 5.3 | 4.51 | 4.08 | 4.19 | 3.96 | 4.57 |
Fastenal benefits from generally positive cash flows, an excellent current ratio of 4.57, and wider gross margins than its peer group. The company's financial statements show positive EPS growth and healthy leverage levels. Furthermore, Fastenal has growing revenues and decreasing reinvestment in the business.
