Fastenal: On the FAST Track

07/07/2014 9:00 am EST


Ingrid Hendershot

Founder and President, Hendershot Investments, Inc.

Our latest featured stock started as a partnership among five friends in 1967; from a single store in Minnesota, the firm has grown to 2,700 stores selling industrial and construction supplies, says Ingrid Hendershot, editor of Hendershot Investments.

Fastenal (FAST) developed a blueprint for what proved to be a rock-solid business model: open stores as close to customers as possible in underserved industrial markets.

Profits generated were then used to fund additional store expansion. This successful formula has generated strong double-digit growth over the years for the company with sales growing at a 15% annual rate over the last five years and net income and EPS compounding at 25% rates.

Throughout its history, Fastenal has maintained a conservative financial position by financing its growth internally without the need for long-term debt. The company ended the first quarter with a strong balance sheet with no long-term debt and more than $89 million in cash.

During the first quarter, the company paid $74 million in dividends and repurchased 200,000 shares at an average price of about $44.24 per share, with the authority to repurchase up to an additional 1.4 million shares.

Management, proven to be excellent capital allocators, returns excess cash to shareholders through special dividends along with a steadily growing regular dividend.

Over the years, Fastenal has built a reputation as one of the most frugal companies in America. This has resulted in high profitability for Fastenal with return on shareholders' equity averaging a superb 22% over the last decade.

With the marketplace in North America for industrial supplies estimated to be in excess of $160 billion, Fastenal is well positioned for future solid growth.

Long-term investors should fasten Fastenal into their portfolio. Fastenal is a HI-quality company generating double-digit and highly profitable growth with a frugal management team and debt-free balance sheet.

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