MSC Industrial Direct Co Inc (NYSE:MSM) and W.W. Grainger, Inc. (NYSE:GWW), two other industrial equipment wholesalers, are two of Fastenal’s peers. Each of these companies’ stocks trades at a significant discount to Fastenal: they are priced at 17 and 20 times their respective trailing earnings. MSC not only carries a lower multiple, but grew its revenue and earnings at double-digit rates last quarter versus a year earlier. While there certainly are significant differences between it and Fastenal, it could be worth considering as a value stock and we’d certainly need to see much better prospects for Fastenal to consider that company a better buy.
We can also compare Fastenal to WESCO International, Inc. (NYSE:WCC) and Anixter International Inc. (NYSE:AXE), though these companies tend to focus more on electrical and communications equipment. These stocks have higher betas, coming in closer to 2 while the other three companies we’ve discussed have betas between 0.9 and 1.2. They are also even cheaper than MSC, with trailing P/E multiples in the 12-14 range. WESCO also stands out for seeing good revenue and earnings growth in addition to its valuation, though the stock is widely shorted and so we’d be careful to look for reasons why that is the case if we studied it further.
We don’t think that this is a good insider purchase to imitate. The growth numbers at Fastenal look good but the current valuation already captures quite a bit of expected earnings growth over the next several years. Peers such as MSC might make for better value investments.