Don't Miss out on This FAST Growing Stock

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Fastenal Company's (NASDAQ: FAST)name no longer does the company justice, as the company has grown from a fastener distributor to a full-line industrial supplier. This stock should be one of the faster growing stocks over the interim. In the first quarter of 2013, Fastenal saw its gross margin expand by 70 basis points year over year to 52.6%.
One of Fastenal's most innovative initiatives is its FAST Solutions idea, which involves installing vending machines at a customer location and keeping it filled with products they need. Its installed number of machines is greater than 21,000 and accounts for around 25%. New store openings are also promoting greater growth. Fastenal hopes to open 65 to 80 new stores in 2013, at the rate of 2.5% to 4%.
Back in 2007, the company introduced its pathway to profit strategy, where it planned to increase sales per store. It aimed to grow its average store sales to $125 thousand per month to reach a pre-tax earnings growth as a percent of net sales of 23%. Yet, the company recently revised this strategy and now believes it can reach the pre-tax earnings percentage target with less than the $125 thousand per month figure, hoping to reach the pre-tax earnings goal of 23% with average store sales as low as $100 thousand to $110 thousand per month in 2013.
Fastenal also saw hedge funds getting excited about the company near the end of 2012. Going into 2013, there were a total of 17 hedge funds long the stock, which was an increase of 21% from one quarter earlier. Billionaire Steve Cohen's SAC Capital holds the most valuable position, with Conatus Capital in second (check out Cohen's top five).

Other notable competitors include  

W.W. Grainger (NYSE: GWW) is another notable distributor of maintenance and operating supplies used by businesses and institutions. Grainger is expected to grow nicely on the back of a rebounding economy. Most notable should be Grainger's growth from rising demand in Canada for construction and oil & gas markets.

The big news of late is that Grainger reported first-quarter profit up 13% year over year on the back of stronger sales in all three of its major segments. The company also upped the low end of its full-year outlook, and is now expecting $11.30 to $12 of EPS and 5% to 9% higher sales. Its previous estimates were $10.85 to $12 a share and 3% to 9% growth. Unlike the robust billionaire hedge fund investors owning Fastenal, the interest is relatively weak for Grainger (check out which funds own Grainger).

Airgas (NYSE: ARG) is a distributor of industrial, medical and specialty gases and welding equipment and supplies. Airgas has fallen more than 6.5% over the last month due to weaker-than-expected sales, which suggests it may miss the low end of its adjusted fourth quarter EPS guidance of $1.18 by 4%. Although near term pressures may still pressure Airgas, it should benefit long-term from an uptrend in U.S. industrial activity. Airgas had very negative hedge fund sentiment at the end of 2012, with 17 hedge funds long the stock, which was a 26% decrease from the third quarter (see which hedge funds were dumping Airgas).
By the numbers

Fastenal is quite expensive by price to earnings standards: 
  Fastenal W.W. Grainger Anixter MSC Airgas
Forward P/E 26 17 10 17 18
But is this premium valuation warranted? Fastenal is above major peers when its comes to growth...
  Fastenal W.W. Grainger Anixter MSC Airgas
5-year expected EPS growth 18% 14.50% 15% 13% 12%
...and generating returns for investors:
  Fastenal W.W. Grainger Anixter MSC Airgas
Return on investment 26% 20% 6% 21% 7%
  Fastenal W.W. Grainger Anixter MSC Airgas
EBITDA margin 23.50% 15.50% 6% 19% 17.50%

Don't be fooled

Fastenal has made some innovative moves and is much more than just a fastener company. Major headwinds that will push the company higher also include higher economic growth. S&P forecasts U.S. GDP to grow 2.7% in 2013, versus estimated growth of 2.2% in 2012. Although from a P/E standpoint the stock looks to be expensive, this premium to the industry is well-warranted given the company's impressive metrics, from growth to investor returns. 

Marshall Hargrave has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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