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Fastenal: A Great Hold but a Pricey Buy

Stocks in this article: FAST HD LOW

The P/E ratio is a little high at 31.35 compared to the 15.30 P/E of the market. The 1.8% dividend rate is about 50% of projected earnings and is slightly lower than the 2.3% dividend rate of the market. The company has an A+ financial strength rating being flush with cash to fund expansion and has no long term debt. Since the company has revenue from Canada, Europe and Asia it is subject to currency translations.

Investor interest: The professional analysts have released one buy, nine hold and two underperform recommendations but the consensus is that investors should see a total annual return in the 8%-10% range over the next five years.

I like to use the readers of Motley Fool as my gauge of the individual investors' sentiment and 862 Fool readers gave the stock a 93% vote of confidence to beat the market. TheStreet gives the stock an A+ rating. During the year the short sellers closed out positions from a high of 21 million share in January to about 14 million shares recently.

Peer competition: The whole building supply industry had a good year in the market. While Fastenal was up 32%, Home Depot (HD) was up 72%, Loew's (LOW) up 53% and MSC Industrial Direct (MSM) up 14%.

Home Depot has an A++ financial rating and TheStreet rated the stock A+. Revenue is expected to be up 2.50% next year and earnings estimated to compound annually at 15.04% for the next 5 years.

Lowes has an A+ financial strength and TheStreet rated the stock B. Revenue is expected to be up 2.40% next year and earnings estimated to grow annually at a 14.69% rate for the next 5 years.

MSC Industrial Direct has an A financial strength rating and is rated by TheStreet as B. Revenue is expected to grow by 8.70% next year and earnings grow by an annual rate of 13.90% for the next 5 years.

Conclusion: I like Fastenal for the double-digit projections of revenue and earnings. However, the P/E of 31.35 is about twice the markets for investors wanted to make a new position in the stock it might be slightly overvalued at this point. If you have the stock I'd hold it and watch for the momentum to break and signal a point to reap your profits. Please watch the moving averages and turtle channels to signal that point:

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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