Fastenal (FAST)

Industrial supplier Fastenal (NASDAQ:FAST) met Wall Street’s revenue expectations in Q3 CY2025, with sales up 11.7% year on year to $2.13 billion. Its GAAP profit of $0.29 per share was in line with analysts’ consensus estimates.

Company Overview

Founded in 1967, Fastenal (NASDAQ:FAST) provides industrial and construction supplies, including fasteners, tools, safety products, and many other product categories to businesses globally.

Supply chain and inventory management are themes that grew in focus after COVID wreaked havoc on the global movement of raw materials and components. Maintenance and repair distributors that boast reliable selection and quickly deliver products to customers can benefit from this theme. While e-commerce hasn’t disrupted industrial distribution as much as consumer retail, it is still a real threat, forcing investment in omnichannel capabilities to serve customers everywhere. Additionally, maintenance and repair distributors are at the whim of economic cycles that impact the capital spending and construction projects that can juice demand.

Competitors in the operating (MRO) supplies industry include W.W. Grainger (NYSE:GWW), MSC Industrial Direct (NYSE:MSM), and HD Supply (NASDAQ:HDS).

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Thankfully, Fastenal’s 7.5% annualized revenue growth over the last five years was decent. Its growth was slightly above the average industrials company and shows its offerings resonate with customers.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Fastenal’s recent performance shows its demand has slowed as its annualized revenue growth of 4.8% over the last two years was below its five-year trend.

We can dig further into the company’s revenue dynamics by analyzing its number of units sold, which reached 133,910 in the latest quarter. Over the last two years, Fastenal’s units sold averaged 11.1% year-on-year growth. Because this number is better than its revenue growth, we can see the company’s average selling price decreased.

This quarter, Fastenal’s year-on-year revenue growth was 11.7%, and its $2.13 billion of revenue was in line with Wall Street’s estimates.

Looking ahead, sell-side analysts expect revenue to grow 9.8% over the next 12 months, an improvement versus the last two years. This projection is commendable and suggests its newer products and services will fuel better top-line performance.

Cost of sales for an industrials business is usually comprised of the direct labor, raw materials, and supplies needed to offer a product or service. These costs can be impacted by inflation and supply chain dynamics.

Fastenal has best-in-class unit economics for an industrials company, enabling it to invest in areas such as research and development. Its margin also signals it sells differentiated products, not commodities. As you can see below, it averaged an elite 45.6% gross margin over the last five years. Said differently, roughly $45.63 was left to spend on selling, marketing, R&D, and general administrative overhead for every $100 in revenue.

In Q3, Fastenal produced a 45.3% gross profit margin, in line with the same quarter last year. Zooming out, the company’s full-year margin has remained steady over the past 12 months, suggesting its input costs (such as raw materials and manufacturing expenses) have been stable and it isn’t under pressure to lower prices.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Fastenal’s operating margin might fluctuated slightly over the last 12 months but has remained more or less the same, averaging 20.5% over the last five years. This profitability was elite for an industrials business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

Analyzing the trend in its profitability, Fastenal’s operating margin might fluctuated slightly but has generally stayed the same over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q3, Fastenal generated an operating margin profit margin of 20.7%, in line with the same quarter last year. This indicates the company’s cost structure has recently been stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Fastenal’s unimpressive 7.8% annual EPS growth over the last five years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Fastenal, its two-year annual EPS growth of 3.7% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, Fastenal reported EPS of $0.29, up from $0.26 in the same quarter last year. Despite growing year on year, this print missed analysts’ estimates. Over the next 12 months, Wall Street expects Fastenal’s full-year EPS of $1.07 to grow 13.5%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Fastenal has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 13% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Fastenal’s margin dropped by 1.2 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Fastenal’s free cash flow clocked in at $326.6 million in Q3, equivalent to a 15.3% margin. This result was good as its margin was 2.9 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, leading to temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Although Fastenal hasn’t been the highest-quality company lately, it found a few growth initiatives in the past that worked out wonderfully. Its five-year average ROIC was 31.6%, splendid for an industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Uneventfully, Fastenal’s ROIC has stayed the same over the last few years. Given the company’s underwhelming financial performance in other areas, we’d like to see its returns improve before recommending the stock.

Fastenal reported $288.1 million of cash and $517.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $1.79 billion of EBITDA over the last 12 months, we view Fastenal’s 0.1× net-debt-to-EBITDA ratio as safe. We also see its $100,000 of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We struggled to find many positives in these results. Its EPS was just in line and its EBITDA fell short of Wall Street’s estimates. Overall, this quarter could have been better. The stock traded down 3.9% to $44.03 immediately following the results.

Updated: December 4, 2025 at 9:02 PM EST

A common mistake we notice when investors are deciding whether to buy a stock or not is that they simply look at the latest earnings results. Business quality and valuation matter more, so we urge you to understand these dynamics as well.

Fastenal isn’t a terrible business, but it doesn’t pass our quality test. Although its revenue growth was decent over the last five years and is expected to accelerate over the next 12 months, its cash profitability fell over the last five years

Fastenal’s P/E ratio based on the next 12 months is 35x. This valuation tells us a lot of optimism is priced in - you can find more timely opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $43.46 on the company (compared to the current share price of $41.77).