Nuts and Bolts Investing With Fastenal Company (FAST)

Those happy customers allowed the company’s sales to rebound nicely from their low of $1.93 billion in 2009 to a record $3.1 billion last year.  At the same time, average store sales have grown from just $81,000 to $118,000.

Importantly, higher store sales are coming across an increasingly larger footprint.

Despite slowing new construction, Fastenal’s store count has still grown to 2,652 from 2,311 in 2008. Over time, Fastenal thinks the North American market can support 3,500 stores or more, with each conceivably generating $125,000 in annual sales.

Since Fastenal is only increasing new stores by 3% this year, future growth has to come from innovation too.

Sure, more sales people can help boost dollars per square foot.  But, Fastenal’s industrial vending machine program may be increasingly important over the coming two years.

These machines dispense fasteners instead of candy bars and Fastenal has more than 21,000 of them installed at industrial sites, up from just 1,925 in 2010.  This year, Fastenal hopes to ink deals for 30,000 machines.

As these machines are increasingly deployed, Fastenal should be able to improve inventory management and boost revenue.

The final take

The biggest risk facing Fastenal remains the economy.  If home sales stutter and industrial production falls, fastener sales will drop too.  So, keep a close eye on those two pieces of data.

For now, net sales continue to improve.

In the first four months of this year, they’re up 4.8% from a year ago.  The gains are mostly thanks to strength from manufacturing customers, which account for 50% of sales.  But, contractor sales are starting to improve, edging up 0.4% in April.

The warmer weather should help support those contractor sales given summer is typically the strongest for improvement projects.

That seasonality is reflected in share prices, which have gained in 7 of the past 10 years from now through August, according to the Seasonal Investor database.

While you can’t be certain seasonality will repeat again this year, the combination of sales and margin growth tied to manufacturing and construction markets suggest now may be a good time for Fools to consider buying shares.

Todd Campbell has no position in any stocks mentioned. The Motley Fool recommends Coca-Cola.

The article Nuts and Bolts Investing With Fastenal originally appeared on Fool.com and is written by Todd Campbell.

Todd is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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