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Don't Miss Out On This FAST Growing Stock

Added on by Gordon Gekko .

Be sure to check out our detailed stock analysis (click here). Fastenal Company (NASDAQ: FAST)name is no longer does the company justice, as the company has grown from a fastener distributor to a full-line industrial supplier. This stock should be one of the fast-growing stocks over the interim. In the first quarter of 2013, Fastenal saw its gross margin expand by 70 basis points year over year to 52.6%.

One of Fastenal's most innovative initiatives is its FAST Solutions idea, which involves installing vending machines at a customer location and keeps it filled with products they need. Its installed number of machines is greater than 21,000 and accounts for around 25%. New store openings is also promoting greater growth. Fastenal hopes to open 65 to 80 new stores in 2013, at the rate of 2.5% to 4%.

Back in 2007, the company introduced its a pathway to profit strategy, where it planned to increase sales per store. The company aimed to grow its average store sales to $125 thousand per month to reach a pre-tax earnings growth as a percent of net sales of 23%. Yet, the company recently revised this strategy and now believes it can reach the pre-tax earnings percentage target with less than the $125 thousand per month figure, hoping to reach the pre-tax earnings percent goal of 23% with average store sales as low as $100 thousand to $110 thousand per month in 2013.

Fastenal also saw hedge funds getting excited about the company near the end of 2012. Going into 2013, there were a total of 17 hedge funds long the stock, which was an increase of 21% from one quarter earlier. Billionaire Steve Cohen's SAC Capital holds the most valuable position, with Conatus Capital in second (check out Cohen's top five).

Other notable competitors include  

W.W. Grainger (NYSE: GWW) is another notable distributor of maintenance and operating supplies used by businesses and institutions. Grainger is expected to grow nicely on the back of a rebounding economy. Most notably should be Grainger's growth from rising demand in Canada for construction and oil & gas markets.

The big news of late is that Grainger reported first-quarter profit up 13% year over year on the back of stronger sales in all three of its major segments. The company also upped the low end of its full-year outlook, and is now expecting $11.30 to $12 of EPS and 5% to 9% higher sales. Its previous estimates were $10.85 to $12 a share and 3% to 9% growth. Unlike the robust billionaire hedge fund investors owning Fastenal, the interest is relatively weak for Grainger (check out which funds own Grainger).

Airgas (NYSE: ARG) is a distributor of industrial, medical and specialty gases and welding equipment and supplies. Airgas has fallen more that 6.5% over the last month due to weaker-than-expected sales, which suggest it may miss the low end of its adjusted fourth quarter EPS guidance of $1.18 by 4%. Although near term pressures may still pressure Airgas, it should benefit long-term from an uptrend in the U.S. industrial activity. Airgas had very negative hedge fund sentiment at the end of 2012, with 17 hedge funds long the stock, which was a 26% decrease from the third quarter (see which hedge funds were dumping Airgas).

By the numbers

Fastenal is quite expensive by price to earnings standards: 

 FastenalW.W. GraingerAnixterMSCAirgasForward P/E2617101718

But is this premium valuation warranted? Fastenal is above major peers when its comes to growth...

 FastenalW.W. GraingerAnixterMSCAirgas5-year expected EPS growth18%14.50%15%13%12%

...and generating returns for investors:

 FastenalW.W. GraingerAnixterMSCAirgasReturn on investment26%20%6%21%7%

 FastenalW.W. GraingerAnixterMSCAirgasEBITDA margin23.50%15.50%6%19%17.50%

Don't be fooled

Fastenal has made some innovative moves and is much more than just a fastener company. Major headwinds that will push the company higher also includes higher economic growth. S&P forecast U.S. GDP to grow 2.7% in 2013, versus estimated growth of 2.2% in 2012. Although from a P/E standpoint the stock looks to be expensive, this premium to the industry is well-warranted given the company's impressive metrics, from growth to investor returns.