October 13, 2008 - Fastenal Co. (FAST-NASDAQ) together with its subsidiaries, sells industrial and construction supplies. The company offers threaded fasteners, such as bolts, nuts, screws, studs, and related washers, as well as miscellaneous supplies, such as paints, various pins and machinery keys, concrete anchors, batteries, sealants, metal framing systems, wire ropes, struts, private-label stud anchors, rivets, and related accessories. These products are used in manufactured products and building projects, and in the maintenance and repair of machines and structures.

Fastenal offers its products to the customers in construction markets, including general, electrical, plumbing, sheet metal, and road contractors, as well as in manufacturing markets, which include original equipment manufacturers, and maintenance and repair operations. Its other customers include farmers; truckers; railroads; mining companies; federal, state, and local governmental entities; schools; and certain retail trades. As of December 31, 2007, the company operated 2,160 stores in 50 states in the United States, plus Puerto Rico, Canada, Mexico, Singapore, China, and the Netherlands. Fastenal Company was founded in 1967 and is based in Winona, Minnesota.

If you look at a chart of FAST's stock, you wish all your stocks acted like this one, up until 3 weeks ago. Since a low of $5.10 (all prices adjusted for stock splits) in 1998, this stock has steadily moved higher, completely ignoring the trials of the dot com bust and even last year's events. However, in the last few weeks, even this stalwart has been dealt blows. After hitting an all-time high of $56.48 on September 19 (three weeks ago), the stock has felt the fear that all stocks suffer from in this historically difficult market. Now you can buy all the stock you want at $35 a share.

The most recent news came on October 6 when the company announced a conference call to review third quarter earnings. That will be on Monday, October 13 at 9 Central Time. On October 2, the company released these comments on trends in the industry:

(1) Our sales growth from September 2007 to September 2008 was approximately 26.4%. There were 19 business days in September 2007 and 21 business days in September 2008. Adjusting for the two extra business days in 2008, our daily sales growth from September 2007 to September 2008 was approximately 14.3%. This daily sales growth was above our internal expectation for the month.

(2) We have felt the impact of a weakened economic environment in North America over much of 2007 and 2008. Our trends in September 2008 remained consistent with trends earlier in the third quarter and earlier in the year.

(3) We were surprised by the reported ISM index (Institute of Supply Management) of 43.5 for September versus the 50.0 and 49.9 reported after July and August, respectively. It is inconsistent with our results in September.

As indicated above, it is not our practice to release piecemeal financial information at quarter end. However, given the sharp movement in our stock price, we felt a need to share some preliminary trend information with our long-term shareholder base.

Over the last 10 years, profits have annually appreciated by 19.5%, on average while sales were up by 19.5%. In the last 5 years, the trend in earnings is even better with improvements on average of 21.5% a year and while sales were ahead by 17% a year, on average. For the next year, analysts see sales up by 12.5% and earnings up 18.86%. Earnings were $1.10 in 2005, then $1.32 in 2006, followed by $1.55 in 2007. This year, analysts see $1.92 and next year $2.12. 11 analysts cover the stock. The earnings announcement will be on October 13.

More numbers: Market cap is $5.2 billion with 148.5 million shares outstanding and 128 million in the float. Insiders own 15.72% of the stock and institutions have 76.5% of it. Profit margin is 11.81% with an Operating margin of 19.07%. Return on Assets is 22%. Return on Equity is an exemplary 25%. Total revenues for the last 12 months were $2.22 billion. Total cash in the bank is $77.12 million with no debt. Current ratio is 6.53. Book Value per share is $7.45. The company is buying back stock. During the first half of 2008, it bought 200,000 shares. It has authority to buy another 1.8 million shares.

Fastenal has long delivered increasing profits. Management takes very low salaries but owns a great deal of stock, thereby benefitting with all other shareholders when the stock increases. With the current price selling well below the stock's recent highs, drilling down into FAST should be a worthwhile use of any investor's time.

Company Web site: www.fastenal.com

- Ted Allrich