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Roof Leaker To Watch: Fastenal (FAST)

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Fastenal ( FAST) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Fastenal as such a stock due to the following factors:

  • FAST has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $58.0 million.
  • FAST has traded 2.3 million shares today.
  • FAST is trading at 3.18 times the normal volume for the stock at this time of day.
  • FAST crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

EXCLUSIVE OFFER: Get the inside scoop on opportunities in FAST with the Ticky from Trade-Ideas. See the FREE profile for FAST NOW at Trade-Ideas

More details on FAST:

Fastenal Company, together with its subsidiaries, operates as a wholesaler and retailer of industrial and construction supplies in the United States, Canada, and internationally. The company offers fasteners and other industrial and construction supplies under the Fastenal name. The stock currently has a dividend yield of 2%. FAST has a PE ratio of 32.6. Currently there are 3 analysts that rate Fastenal a buy, 1 analyst rates it a sell, and 6 rate it a hold.

The average volume for Fastenal has been 1.4 million shares per day over the past 30 days. Fastenal has a market cap of $14.7 billion and is part of the services sector and wholesale industry. The stock has a beta of 1.02 and a short float of 12.2% with 24.66 days to cover. Shares are up 3.2% year-to-date as of the close of trading on Wednesday.

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TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Fastenal as a buy. 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, growth in earnings per share, increase in net income and expanding profit margins. We feel these strengths outweigh the fact that the company is trading at a premium valuation based on our review of its current price compared to such things as earnings and book value.

Highlights from the ratings report include:

  • FAST's revenue growth has slightly outpaced the industry average of 2.5%. Since the same quarter one year prior, revenues slightly increased by 8.7%. 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 1.87, which demonstrates the ability of the company to cover short-term liquidity needs.
  • FASTENAL CO's earnings per share improvement from the most recent quarter was slightly positive. 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 $1.51 versus $1.42 in the prior year. This year, the market expects an improvement in earnings ($1.70 versus $1.51).
  • The net income growth from the same quarter one year ago has exceeded that of the Trading Companies & Distributors industry average, but is less than that of the S&P 500. The net income increased by 2.6% when compared to the same quarter one year prior, going from $109.05 million to $111.93 million.
  • The gross profit margin for FASTENAL CO is rather high; currently it is at 53.15%. Regardless of FAST's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, FAST's net profit margin of 12.77% compares favorably to the industry average.

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