Daniel Florness, the CFO of Fastenal Company (NASDAQ:FAST), purchased just over 2,600 shares of the company’s stock on December 5th at a average price of $41.50, according to a filing with the SEC. Florness now owns about 45,000 shares of the stock between his direct holdings and his 401k plan. Fastenal Company is a wholesaler and retailer of industrial and construction supplies including bolts, nuts, and screws.
Insiders should be reluctant to purchase shares in the company they work for because they already have a tight economic connection in the form of their income; they should prefer to diversify their wealth unless they are very confident in the future. This is one reason why studies show that stocks bought by insiders tend to outperform the market (read more about studies on insider trading). Our database of insider trading filings shows that Florness had bought a small number of shares in May at a slightly higher price than where the company is currently trading (see a history of his insider purchases). However, our records also show a smaller (1,000 share) buy by another insider in November. Consensus insider buying is a particularly bullish signal and so we think that it is useful to look more closely at the company.
In the third quarter of the year, Fastenal Company reported a 10% increase in revenue compared to the same period in 2011. With costs held in check, earnings grew 13% bringing the growth rate of net income in the first nine months of 2012 down to 19%. That is decent business performance, but at a market capitalization of $12.5 billion, Fastenal trades at 31 times trailing earnings. We like that the company has been growing, but it would need to continue its current growth rates for quite some time in order to justify that valuation. Even in terms of consensus 2013 earnings, the P/E multiple is 26.
We also track hedge fund activity, and while limited there were some managers buying into the stock last quarter. Billionaire Steve Cohen’s SAC Capital Advisors initiated a position of 1 million shares in Fastenal during the third quarter of 2012 (check out Cohen's favorite stocks). Conatus Capital Management, which has $2 billion under management despite only being founded in 2008, also took on a position in the stock. Conatus is managed by David Stemerman, who had previously worked at Lone Pine Capital. See more of Stemerman's stock picks.