Fastenal: Network Expansion Will Lead to Better TimesFAST) has surprisingly lost almost 20% of its market cap this year even though it has posted consistently strong financial results in the past few quarters. In my opinion, this looks like an opportunity for investors to buy more shares.
Moves that will accelerate growth
Fastenal is making investments into the key growth drivers of its business. Through the addition of more people, Fastenal is adding to its ability of cooperating with and to cater to its customers through its local stores and assist them by offering superior after sales service.
Fastenal’s key workforce expansion strategy to accelerate company sales and provide outstanding both before and after sale services was partially offset by the globally declining commodity pricing environment, severely impacting the company margins.
Going forward, Fastenal has successfully explored a huge marketplace for its key products and services. Importantly, the North American marketplace for industrial supplies is forecasted to be more than $160 billion per year and Fastenal has extended beyond North America. Moreover, no other company is expected to have a major portion of this key market. Fastenal is believed to have a competitive advantage with several of its products being sold are separately low-priced.
Fastenal has crafted a niche about its easier accessibility with large number of its local stores. The industrial supply major is believed to have well-managed the time and cost to identify, collect and even supply the bulky products to its customers within the stipulated time and price. Fastenal has identified its customers’ key requirements to lower their count of suppliers for simplifying their business and leverage advanced technologies to enhance accessibility and minimize waste.
Fastenal’s improved unit sales are primarily a result of sales expansions at traditional stores and linked to the reduced number of new stores launched since the past many years. The net sales expansion at the traditional store locations were primarily driven by the favorable foreign currency exchange rates (particularly for Canada) compared to the U.S. dollar.
The sales growth of Fastenal was mainly propelled by enhanced sales from both its new and traditional store locations. The company’s significant market reach and its huge size with no significantly large competitor again provide it with a unique competitive advantage to grow its top line through superior pricing.
The extended industrial vending portfolio of Fastenal includes 19 different vending devices, with the FAST 5000 device which is a helix based machine, depicting nearly 40% of the installed machines. At present, Fastenal estimates its monthly revenue in the range of under $1,000 to over $3,000 per device.
Fastenal shares might not be in good shape this year, but it cannot be denied that the company is expanding its network and this will help it profit from improving construction activity in the U.S. Thus, according to me, it will be a good idea to buy Fastenal shares on the drop as its financial performance is likely to get better in the long run.
Published on Sep 19, 2015By Vinay Singh