A Big Long-term Winner Under Investors' Radar

 

Disclosure: I own shares of FAST

Momentum investors busy chasing after high-flying Internet and biotechnology stocks have probably missed Fastenal Company, a wholesaler and retailer of industrial and construction materials like screws, bolts, and fasteners in the US and overseas. The company's stock has been a big winner—beating both the S&P500 and the Nasdaq Indexes by a wide margin over a 30-year period.

Last week, the company reported adjusted earnings of 38 cents per share in Q1 of 2014, beating the Zacks Consensus Estimate and year-ago earnings of 37 cents by a penny.

Net sales of $876.5 million in the first quarter of 2014 are up 8.7% year over the year, exceeding the Zacks Consensus Estimate of $870 million by a marginal 0.8%.

(Photo credit: Wikipedia)

What is the secret of Fastenal Fastenal's outstanding performance? In the short-term, Fastenal has benefited from a rebound in the construction sector.

Long-term, Fastenal is a typical case of a company with multiple advantages.

One of its advantages is scale, the savings associated with a larger production size. Fastenal has 2,600+ store locations in the US and Mexico.

Another advantage is scope, the savings associated with the offering for sale of different products by a single corporation rather than by different corporations. Fastenal sells hundreds of thousands of MRO, construction and OEM products that extend to 15 product lines.

A third advantage is customization, the offering of customer-tailored solutions. Fastenal's manufacturing facilities cater products to different customer needs.

A fourth advantage is bundling, the packaging of different product characteristics to produce unique consumer offerings. Fastenal's extensive store network and highly trained personnel allows the company to bundle products with services; and avoid commoditization.

And a fifth advantage is aggregation, the benefits associated with pulling a large number of orders together. Fastenal helps its customers cut their transaction costs by offering them a one-stop solution to their hardware needs.

Supporting Fastenal's multiple advantages is the integration of its supply chain activities, creating a formidable barrier to entry for new competitors. The company owns manufacturing facilities, a transportation fleet, distribution centers, inventory supply systems, and retailing and sales service facilities.

The bottom line: What makes a company a long-term winner isn't investor investor hype, but company fundamentals. Most notably the ability to raise barriers to entry to its markets; and Fastenal has plenty.