Fastenal (NASDAQ:FAST) Is Aiming To Keep Up Its Impressive Returns

Did you know there are some financial metrics that can provide clues of a potential multi-bagger? Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. Ergo, when we looked at the ROCE trends at Fastenal (NASDAQ:FAST), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Fastenal is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.36 = US$1.4b ÷ (US$4.6b - US$849m) (Based on the trailing twelve months to June 2022).

Therefore, Fastenal has an ROCE of 36%. That's a fantastic return and not only that, it outpaces the average of 14% earned by companies in a similar industry.

See our latest analysis for Fastenal

In the above chart we have measured Fastenal's prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Fastenal here for free.

The Trend Of ROCE

It's hard not to be impressed by Fastenal's returns on capital. Over the past five years, ROCE has remained relatively flat at around 36% and the business has deployed 49% more capital into its operations. Returns like this are the envy of most businesses and given it has repeatedly reinvested at these rates, that's even better. If these trends can continue, it wouldn't surprise us if the company became a multi-bagger.

The Bottom Line

Fastenal has demonstrated its proficiency by generating high returns on increasing amounts of capital employed, which we're thrilled about. And long term investors would be thrilled with the 174% return they've received over the last five years. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

If you'd like to know about the risks facing Fastenal, we've discovered 1 warning sign that you should be aware of.

If you'd like to see other companies earning high returns, check out our free list of companies earning high returns with solid balance sheets here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.