Fastenal Company (NASDAQ:FAST) traded at around $51 on October 6 and is 6.83% higher over twelve months.
The company earns a 21.52% return on assets selling screws, bolts, and industrial supplies. That figure is the whole story, because distribution is not supposed to earn returns like that.
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The Moat Is Physical Proximity to the Customer:
Fastenal does not win on price and does not try to. It installs vending machines and staffed supply points inside its customers’ own factories, so the inventory sits on the production floor rather than in a warehouse across town.
That changes what the customer is buying. A plant manager halting a line for a missing fastener loses far more than the fastener costs. Once that equipment is installed and stocked to a plant’s specific parts list, switching suppliers means re-engineering the supply process rather than comparing two prices.
The returns show the result. Return on assets of 21.52% and return on equity of 34.33% are figures a commodity distributor should not be able to reach. Revenue grew 14.70% in the most recent quarter, which for this industry is fast. In January, we ranked ten stocks for high returns. The one we put first has returned almost 30% since.
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Why the Moat Looks Wider Than It Did:
The direction is visible in the margins rather than in the growth rate. Gross margin is 44.70% and operating margin is 21.02%, on a net margin of 15.45%. A distributor holding a gross margin near 45% is pricing on service rather than on product, which is what the installed base allows.
The balance sheet confirms the model needs very little. Debt is $441.5 million against a current ratio of 4.18, giving debt-to-equity of 10.85%. So the growth is being funded out of the business rather than borrowed, and $1.16 billion of free cash flow covers the dividend comfortably.
What the moat does not solve is the price. The shares trade at 43.82 times trailing earnings with a PEG ratio of 3.37. We named fifteen stocks built to compound for a decade. What they have in common is explained here.
The Valuation Case:
Fastenal traded at around $51 on October 6 and is worth $58.84 billion. Sustainability depends on industrial production, which decides how many plants there are to install equipment inside. On price, nothing here is cheap. At 43.82 times trailing and 36.55 times forward, the multiple is a technology multiple on an industrial distributor.
Enterprise value to EBITDA of 29.88 says the same, and price to sales of 6.72 is extraordinary for a business reselling other manufacturers’ parts. A beta of 0.69 means the shares move less than the index. Short interest of 3.55% is modest for a stock priced this richly.
Conclusion:
The moat is widening, and the price already knows it. Equipment installed inside customer plants turns a commodity into a service, which is how a distributor reaches a 44.70% gross margin and a 21.52% return on assets. However, the shares trade at 43.82 times trailing earnings with a PEG ratio of 3.37, so the quality is being paid for several times over. Revenue grew 14.70% while earnings were up 15.90%. The number to watch is return on assets, because 21.52% is the figure that justifies the entire multiple.
Market Sentiment:
Fastenal Company was held by 47 hedge funds with a combined stake value of about $0.80 billion at the end of Q2 2026 in the Insider Monkey database. This is down from 50 hedge fund holders with a cumulative investment value of around $1.08 billion in the previous quarter.
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This article is originally published at Insider Monkey.
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