Stock Analysis

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

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To find a multi-bagger stock, what are the underlying trends we should look for in a business? One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount 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. That's why when we briefly looked at Fastenal's (NASDAQ:FAST) ROCE trend, we were very happy with what we saw.

Understanding Return On Capital Employed (ROCE)

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from 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)

0.39 = US$1.5b ÷ (US$4.5b - US$790m) (Based on the trailing twelve months to December 2022).

So, Fastenal has an ROCE of 39%. In absolute terms that's a great return and it's even better than the Trade Distributors industry average of 16%.

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NasdaqGS:FAST Return on Capital Employed March 16th 2023

Above you can see how the current ROCE for Fastenal compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like to see what analysts are forecasting going forward, you should check out our free report for Fastenal.

What Can We Tell From Fastenal's ROCE Trend?

We'd be pretty happy with returns on capital like Fastenal. Over the past five years, ROCE has remained relatively flat at around 39% and the business has deployed 47% 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 Fastenal can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In short, we'd argue Fastenal has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. And the stock has done incredibly well with a 113% return over the last five years, so long term investors are no doubt ecstatic with that result. So while the positive underlying trends may be accounted for by investors, we still think this stock is worth looking into further.

On a final note, we've found 1 warning sign for Fastenal that we think you should be aware of.

Fastenal is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

What are the risks and opportunities for Fastenal?

Fastenal Company, together with its subsidiaries, engages in the wholesale distribution of industrial and construction supplies in the United States, Canada, Mexico, and internationally.

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  • Earnings are forecast to grow 6.78% per year

  • Earnings have grown 10.1% per year over the past 5 years


No risks detected for FAST from our risks checks.

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