9% total return in a ZIRP world? I'm in.
Courtesy of Paul Price at Guru Focus
This blue-chip stock has a good risk/reward analysis at today's quote.
Industrial supply company Fastenal (NASDAQ:FAST) rarely trades with a cheap valuation. It has been a solid growth stock for years. FAST’s share price grew from under $10, back in 2004, to over $53 at its peak in 2012.
Sales and earnings trended higher through 2015. Slow industrial production numbers saw Fastenal’s EPS inch up by a penny in this year’s Q1 before dipping to $0.45 in Q2 versus $0.48 a year earlier. 2016 guidance now projects EPS of $1.75, 2-cents lower than last year.
Long-term holders have little to complain about, but those who bought in at peak valuations over the last few years are sitting on paper losses.
The solid stats (above) support Value Line’s favorable assessment of the firm. Value Line's percentile score ratings on the latter three categories range from 5 (lowest) to 100 (highest).
This is not the first time FAST’s profits, and its share price, have declined. During The Great Recession EPS pulled back by 36.7% and the stock fell by over 50%, in line with the broad market.
FAST climbed by more than 325% from February of 2009 through March of 2012. That’s when over-enthusiasm took FAST to its priciest valuation of the past six and a half years.
Post-recession, FAST has averaged over 28x forward earnings while carrying a typical yield of 1.92%. The best entry points (green-starred below) all came at below-average multiples. Last summer’s selloff offered the only recent opportunity to own the stock at a sub-20 P/E.
Three out of four of FAST’s should-have-sold moments (red-starred) each represented historically overpriced levels.
What can we say about the present value of Fastenal? The stock is now available at a slight discount to its historical P/E. Its yield, at 2.78%, is 44.8% better than the company’s average post-recession payout.
Standard & Poors carries a neutral rating on FAST while noting its solid balance sheet. They project a 12-month target price of $46, about 6.3% above where the shares traded on July 16.
