Throughout FY 23-24, the fasteners segment struggled due to weak industrial production and slower pricing growth. In contrast, safety supplies thrived, bolstered by stable demand for PPE and an increase in vending installations, particularly amongst warehousing and data center customers. Other product lines, such as tools and janitorial supplies, experienced growth in MRO-oriented categories, while OEM-oriented lines like cutting tools faced slower growth.
Fastenal Company, founded as a partnership in 1967 and incorporated in Minnesota in 1968, is a leading supplier of fasteners, safety products, metal cutting tools, and various industrial and construction supplies. The company primarily serves manufacturing, construction, warehousing, wholesale, and government sectors, focusing on business-to-business transactions. In FY 24, fasteners accounted for 31% of total revenue, safety supplies, 22% and other product lines at 47%.
By the end of FY 24, Fastenal had 3,628 locations in 25 countries, supported by 15 distribution centers in North America (12 in the US, 2 in Canada, and 1 in Mexico), 1 in Asia, and 2 in Europe. The company derives 83% of its revenue from the US, 14% from Canada, and Mexico, and 3% from other regions as of FY 24. The company has 24,181 employees as of March 2025.
Market share gains
Fastenal achieved a CAGR in revenue of 7.9% from FY 21 to FY 24, reaching $7.6bn in FY 24. Growth in FY 22 was driven by healthy economic activity and higher pricing, while FY 23 and FY 24 saw gains from increased market share. In addition, there was a shift from fasteners to safety supplies and other products due to sluggish industrial activity.
Operating income increased by 7.5% over the same period, reaching $1.5bn in FY 24. Net income also grew at a CAGR of 7.6%, reaching $1.2bn in FY 24. However, margins have slightly contracted, with operating margins narrowing from 20.3% in FY 21 to 20.0% in FY 24. Net margins also declined from 15.4% in FY 21 to 15.3% in FY 24. In FY 23 and FY 24, margins were impacted by stronger growth from large customers, including Onsite customers, and non-fastener products, which typically have lower margins, leading to an unfavorable product and customer mix.
Cash flows from operations have consistently been positive for the past three years and grew at a CAGR of 15.1%, rising from $770.1m in FY 21 to $1.2bn in FY 24. In addition, FCF have been positive for the past three years, reaching $948.8m in FY 24, underscoring the company's solid cash generation and financial stability.
The analysts project a revenue CAGR of 7.5% over FY 24-27, reaching $9.4bn. Likewise, analysts estimate growth in operating income, with a CAGR of 8.9% CAGR, resulting in $1.9bn and operating margins of 20.8% in FY 27. Net profit is also expected to rise by 8.6% CAGR, reaching $1.5bn with net profit margins of 15.7% in FY 27.
The company’s local peer, W.W. Grainger achieved a revenue 3-year CAGR of 9.7%, reaching $17.2bn in FY 24. Its operating profit CAGR was 19.5%, reaching $2.6bn, and its net profit CAGR was 22.3%, reaching $1.9bn in FY 24. However, it has lower margins compared to Fastenal, with an operating margin of 15.4% and a net margin of 11.1% in FY 24.
Strong revenue momentum
In Q1 25, net sales rose by 3.4% y/y to $1,959.4m. Improved customer contract signings contributed to growth, despite sluggish business activity and a 50 bp negative impact from foreign exchange rates. There was an increase in unit sales driven primarily by a rise in the number of customer sites spending $10K+ per month. In addition, there was growth in average monthly sales per customer site across all spend categories. Product pricing had a minimal impact on net sales, with price levels remaining stable.
The positive trend continued into April and May, with the company reporting revenue of $687.4m for the month of May, up 4.3% y/y, and $691.7m in April, up 6.5% y/y.
Solid stock returns
The company's stock showed stronger returns compared to its local peer, W.W. Grainger. Over the past year, the company's stock rose by 27.7%, whereas W.W. Grainger’s stock increased by 12.8%. The company recently executed a two-for-one stock split of its outstanding common stock, which was implemented through an amendment.
The company is currently trading at a P/E of 38.1x, higher than its 3-year historical P/E of 31.0x and its local peer, W.W. Grainger, at 25.7x. Likewise, its EV/EBITDA is 26.0x, exceeding its historical average of 21.0x and W.W. Grainger 's 17.3x.
The 17 analysts covering the stock have split opinions; three have ‘Buy ratings’, 11 have ‘Hold’ ratings’ and one has an ‘Underperform’ rating and two have ‘Sell’ ratings. The average target price set by these analysts is $38.10, implying that the stock has already exceeded this target price.
Overall, Fastenal has demonstrated positive revenue growth, robust cash flows, and a stable margin profile. It benefits from its global footprint, long-standing market presence, investments in digital capabilities, and a well-diversified product and customer base. The stock has delivered good returns, with analysts optimistic about future revenue and earnings trajectory. However, risks include slow industrial activity, the cyclicality of the fastener business, macroeconomic uncertainty, changes in customer or product mix affecting margins, and tariff pressures impacting Asian sourcing operations.
