If EPS Growth Is Important To You, Fastenal (NASDAQ:FAST) Presents An Opportunity

Investors are often guided by the idea of discovering 'the next big thing', even if that means buying 'story stocks' without any revenue, let alone profit. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' While a well funded company may sustain losses for years, it will need to generate a profit eventually, or else investors will move on and the company will wither away.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in Fastenal (NASDAQ:FAST). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Fastenal with the means to add long-term value to shareholders.

Our analysis indicates that FAST is potentially overvalued!

How Quickly Is Fastenal Increasing Earnings Per Share?

Generally, companies experiencing growth in earnings per share (EPS) should see similar trends in share price. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. We can see that in the last three years Fastenal grew its EPS by 11% per year. That's a pretty good rate, if the company can sustain it.

Careful consideration of revenue growth and earnings before interest and taxation (EBIT) margins can help inform a view on the sustainability of the recent profit growth. While we note Fastenal achieved similar EBIT margins to last year, revenue grew by a solid 17% to US$6.8b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. For finer detail, click on the image.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Fastenal's future profits.

Are Fastenal Insiders Aligned With All Shareholders?

Investors are always searching for a vote of confidence in the companies they hold and insider buying is one of the key indicators for optimism on the market. This view is based on the possibility that stock purchases signal bullishness on behalf of the buyer. Of course, we can never be sure what insiders are thinking, we can only judge their actions.

Despite US$27k worth of sales, Fastenal insiders have overwhelmingly been buying the stock, spending US$749k on purchases in the last twelve months. This overall confidence in the company at current the valuation signals their optimism. We also note that it was the President, Daniel Florness, who made the biggest single acquisition, paying US$239k for shares at about US$48.00 each.

Along with the insider buying, another encouraging sign for Fastenal is that insiders, as a group, have a considerable shareholding. With a whopping US$93m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

While insiders are apparently happy to hold and accumulate shares, that is just part of the big picture. That's because Fastenal's CEO, Dan Florness, is paid at a relatively modest level when compared to other CEOs for companies of this size. The median total compensation for CEOs of companies similar in size to Fastenal, with market caps over US$8.0b, is around US$13m.

The CEO of Fastenal only received US$2.4m in total compensation for the year ending December 2021. First impressions seem to indicate a compensation policy that is favourable to shareholders. CEO compensation is hardly the most important aspect of a company to consider, but when it's reasonable, that gives a little more confidence that leadership are looking out for shareholder interests. Generally, arguments can be made that reasonable pay levels attest to good decision-making.

Is Fastenal Worth Keeping An Eye On?

One positive for Fastenal is that it is growing EPS. That's nice to see. Better yet, insiders are significant shareholders, and have been buying more shares. That makes the company a prime candidate for your watchlist - and arguably a research priority. You should always think about risks though. Case in point, we've spotted 1 warning sign for Fastenal you should be aware of.

There are plenty of other companies that have insiders buying up shares. So if you like the sound of Fastenal, you'll probably love this free list of growing companies that insiders are buying.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.