Fastenal (NASDAQ:FAST) Looks To Prolong Its Impressive Returns

Finding a business that has the potential to grow substantially is not easy, but it is possible if we look at a few key financial metrics. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. 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 who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the 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$638m) (Based on the trailing twelve months to March 2024).

So, Fastenal has an ROCE of 39%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for Fastenal

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, you can check out the forecasts from the analysts covering Fastenal for free.

What Can We Tell From Fastenal's ROCE Trend?

We'd be pretty happy with returns on capital like Fastenal. The company has consistently earned 39% for the last five years, and the capital employed within the business has risen 26% in that time. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Fastenal can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In summary, we're delighted to see that Fastenal has been compounding returns by reinvesting at consistently high rates of return, as these are common traits of a multi-bagger. On top of that, the stock has rewarded shareholders with a remarkable 124% return to those who've held over the last five years. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

While Fastenal looks impressive, no company is worth an infinite price. The intrinsic value infographic for FAST helps visualize whether it is currently trading for a fair price.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.