Fastenal Company’s (NASDAQ:FAST) latest earnings announcement in December 2018 signalled that the business benefited from a strong tailwind, eventuating to a double-digit earnings growth of 30%. Below is my commentary, albeit very simple and high-level, on how market analysts perceive Fastenal’s earnings growth trajectory over the next few years and whether the future looks even brighter than the past. I will be looking at earnings excluding extraordinary items to exclude one-off activities to get a better understanding of the underlying drivers of earnings.
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Market analysts’ consensus outlook for the upcoming year seems rather subdued, with earnings growing by a single digit 7.5%. The growth outlook in the following year seems much more optimistic with rates generating double digit 15% compared to today’s earnings, and finally hitting US$905m by 2022.
While it’s informative understanding the growth rate each year relative to today’s figure, it may be more valuable to determine the rate at which the earnings are growing on average every year. The benefit of this method is that we can get a better picture of the direction of Fastenal’s earnings trajectory over the long run, irrespective of near term fluctuations, which may be more relevant for long term investors. To compute this rate, I’ve appended a line of best fit through the forecasted earnings by market analysts. The slope of this line is the rate of earnings growth, which in this case is 6.2%. This means that, we can presume Fastenal will grow its earnings by 6.2% every year for the next few years.
For Fastenal, there are three fundamental aspects you should further research:
- Financial Health: Does it have a healthy balance sheet? Take a look at our free balance sheet analysis with six simple checks on key factors like leverage and risk.
- Valuation: What is FAST worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether FAST is currently mispriced by the market.
- Other High-Growth Alternatives: Are there other high-growth stocks you could be holding instead of FAST? Explore our interactive list of stocks with large growth potential to get an idea of what else is out there you may be missing!
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.