Ensemble Capital, an independently-owned investment firm, recently published its first-quarter Ensemble Fund commentary – a copy of which can be downloaded here. During the first quarter of 2020, the Ensemble Fund returned -18.6%, while the benchmark S&P 500 was down 19.6%.
In the said letter, Ensemble Capital highlighted a few stocks and Fastenal Co (NASDAQ:FAST) is one of them. Fastenal sells industrial and construction supplies in a wholesale and retail fashion. Year-to-date, FAST stock lost 0.9% and on May 4th it had a closing price of $35.85. Its market cap is of $21.01 billion. Here is what Ensemble Capital said:
“Fastenal Co. (4.7% weight in portfolio): Fastenal is a distribution service business for industrial manufacturing companies in the US. They make it possible to economically and efficiently move lots of small, heavy, high volume, low value parts across vast distances from Asia to the US and then coast to coast. These include things like screws and rivets to gloves, tools, and janitorial supplies. Its network of 2,100 free-standing company stores, 1,100 stores onsite at customer factories, and 100,000 vending machines at customer facilities creates a vast embedded distribution network that physically maintain the company’s relationship with its customers on a daily basis as a critical part of their manufacturing operations.
However, in this time, we know that manufacturers of all sorts of physical goods that are non-essential in the present moment are taking a big hit to demand. But many of these products wear out over time, need refreshing, repair, or fulfill new needs in consumers’ and businesses’ lives. As life returns to normal over time, whatever that new or old normal may look like, we know that consumers and businesses will have a pent-up demand to fill or replace those product needs. Exactly what products they will need to fill is unknown at this time, but because Fastenal serves thousands of manufacturing customer across industries, Fastenal’s services will be needed and will shift to fulfill where the demand is.
The key to benefiting from this resurgence in the future will be the ability to serve customers well as they ramp up their production. We estimate it would take a sustained revenue decline more than twice as deep as was seen during the Great Recession for the company’s profits to fall to zero while a strong balance sheet can tide the company through an extended recessionary period. On the other hand, the company’s strong culture and renowned service performance means that it can leverage its balance sheet strength to continue investing in new customer relationships and distribution categories while weaker competitors in this very fragmented market are caught on their back foot over the next few quarters.”
In Q4 2019, the number of bullish hedge fund positions on FAST stock increased by about 10% from the previous quarter (see the chart here).
Disclosure: None. This article is originally published at Insider Monkey.
