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Why Fastenal (FAST) is Plunging Today

NEW YORK (TheStreet) -- Fastenal (FAST - Get Report) tumbled early on Wednesday after reporting fourth-quarter and full-year financials. Shortly after market open, shares had taken off 6.4% to $45.12.

The industrial machinery wholesaler reported net income for the fourth-quarter ended December of 33 cents a share, missing Yahoo! Finance consensus by a penny. Revenue of $813.76 million was in line with expectations and 7.5% higher than the year-ago quarter.

For fiscal 2013, the company reported net income of $1.51 a share. Revenue of $3.33 billion was 6.1% higher than a year earlier. Again, the results missed earnings expectations by a penny, but revenue came in as expected.

In December, the company issued a press release warning of weakening sales and gross margin trends.

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"This weakening was worse than we expected and this created additional drain on our ability to grow earnings. We did grow our net earnings in the fourth quarter of 2013, but we are disappointed our net earnings per share did not grow," the company said in a statement on Wednesday.

The Winona, Minn.-based business said gross margin slid outside the expected 51% to 53% range over the fourth quarter, due to lower utilization of its trucking network, supplier incentives aligned with the end-of-year calendar, its product mix and a competitive marketplace.

"The last two factors require external and internal improvements. We are actively working on the internal component and are positioning our business to take advantage of improvements in the industrial economy, but the timing is uncertain. Despite this, we continue to believe the 51% to 53% range is appropriate for our business given our end market and product mix," the company noted.

TheStreet Ratings team rates FASTENAL CO as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate FASTENAL CO (FAST) a BUY. This is driven by multiple strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, notable return on equity, expanding profit margins and growth in earnings per share. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • FAST's revenue growth has slightly outpaced the industry average of 6.1%. Since the same quarter one year prior, revenues slightly increased by 7.0%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • FAST has no debt to speak of therefore resulting in a debt-to-equity ratio of zero, which we consider to be a relatively favorable sign. To add to this, FAST has a quick ratio of 2.10, which demonstrates the ability of the company to cover short-term liquidity needs.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. When compared to other companies in the Trading Companies & Distributors industry and the overall market, FASTENAL CO's return on equity exceeds that of the industry average and significantly exceeds that of the S&P 500.
  • FASTENAL CO has improved earnings per share by 8.1% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, FASTENAL CO increased its bottom line by earning $1.42 versus $1.22 in the prior year. This year, the market expects an improvement in earnings ($1.52 versus $1.42).
  • The gross profit margin for FASTENAL CO is rather high; currently it is at 53.56%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 13.90% is above that of the industry average.

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