Welcome to the Fastenal shareholders group.  I am a current holder of FAST having made my first purchase in 1998 and during this time it has shown a return of over 22% per year.  I hope history repeats.  I think you have picked a good time to invest in FAST since it normally sells at higher PE Ratios. I am always cautious when a high quality company like FAST sells at lower than historical prices. My take on why the stock is currently selling lower includes the following:

1) Some of the FAST business is associated with the housing industry that is recently in a slump.  I expect  this excess housing inventory to be worked off sometime during 2007.

2) FAST is dependent upon the economy and thus is affected if the economy declines or slows. (Some call this cyclical but I have found FAST has been able to grow quite well in this cyclical industry.)  Many are expecting a slowdown in GDP perhaps in 2007.  We are overdue for a slowdown, but I have learned trying to predict when thes will occur is a fools game. So whenever it comes I expect FAST to be a survivor and will strongly emerge.

3) FAST has recently initiated actions aimed at growing same store sales(SSS). I view growing same SSS to be a key measure of success for a retail type company.  FAST calls this CSP (Customer servive Project).  Basically it includes adding inventory, adding staff and realigning the store layouts that impacts expenses in the short term but has proven to increase revenue, profit and margins and SSS longer term. So this investment in the future has dissapointed some analysts since profits have been impacted. I see this as a plus.

I see these to be the main factors that have recently affected the FAST stock price and I view each of them as temporary in nature and thus I do think FAST is a bargain at recent prices.

FAST has a Quality Rating at Manifest of 87 that is quite high. Manifest rates LNCR and KNX as the only companies having higher ratings.

I see the main strength of FAST to be their management.  They are honest, competent, intent on growing the business and profits and  look out for shareholders.   They are not found seeking media coverage but seem to spend their time running the business.

My SSG is similar to yours although slightly more conservative. For sales and EPS growth I have 15% the same as you. I have a high PE of 28 vs your 35. I do note Manifest has an average PE of 27. I have a high price of 72 vs your 77 and my low price is 22 vs your 25. I see these differences within my accuracy.  

In case you have not discovered it, FAST provides superb monthly sales information at its web site. Click on this URL to see

http://www.fastenal.com/web/aboutUs.ex?action=FinancialReports

Good luck and a Happy and Prosperous 2007.

Dan Hess

Attached is my SSG for Fastenal.

Dan Hess

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SSG file added by Joe Craig

Hi Dan - I'm unable to open the FAST file.  The error message is 'damaged file'.  Could you upload again - perhaps in another format?   Thanks.

Steven

Many of us calculate FCF differently.  I use Cash from Operations(CFO) minus capital expenditures(CAPX)- Free Cash Flow (FCF).  From the 10Q for 3Q06 I see:

CFO = 79.67M

CAPX = 60.4M

Thus FCF = 19.27M.  This I see as positive but not as high as I would like.  Probing around the 10Q I see Net income rose 20.2% while Inventory rose 27.7%. This negatively impacted CFO by about $12.4M.  I covered the reasons for this in my earlier post.

I also see purchased property and equipment is up from 42.38M in the prior 9 months to 63.576M or about 50%.  This gets my attention and it seemed to get Fastenal mgmt attention as well as they explained the reasons for it in the 10Q as follows:

Property and equipment expenditures in the nine months of 2006 consisted of: (1) the purchase of software and hardware for Fastenal's information processing systems, (2) the addition of certain pickup trucks, (3) the purchase of signage, shelving, and other fixed assets related to store openings and conversion of existing stores to the expected inventory stocking model (formerly referred to as CSP) or to the CSP2 stocking model, (4) the addition of manufacturing and warehouse equipment, (5) the expansion or improvement of certain owned or leased store properties, (6) the expansion of Fastenal's distribution/trucking fleet, and (7) cost related to the relocation of our Fresno, California distribution center (approximately 52,500 square feet) to our new Modesto, California distribution center (approximately 320,000 square feet). Disposals of property and equipment consisted of the planned disposition of certain pickup trucks, semi-tractors, and trailers in the normal course of business and the disposition of real estate relating to several store locations.

While they did not provide a breakdown of how much was spent on each of these items my guess is the CSP-2, Trucking initiative to move trucking inhouse from UPS and other truckers and the new distribution center were likely the main contributors.  CSP will be continuing for a while but I would expect the trucking and distribution expenses to decline.

I do think CAPX as well as the management of inventory and accounts receivable are items to observe to see if the trends do improve.

I do see it as a sign of financial confidence that in June 06 the board authorized the buyback of 500000 share or about $18M.  If they perceived ongoing cash flow to be a problem I would not think they would have made this decision. I do note the Balance Sheet shows a decline in C&E from 56M to 13M indicative of the inventory problem and the higher CAPX. I do like to see companies like FAST being able to fund their growth without taking on any long term debt.

Dan Hess

I believe, both of the SSGs in this thread were basing their EPS estimate off of the 2005 EPS instead of off of the current EPS using the end of the trend line.  I attached my SSG which is in line with the others with respect to growth rates, but since we are already into the fourth quarter (actually done with it but awaiting reporting) I show a buy rather than a hold.  Actually this is a stock I am bringing to my club in two weeks as a purchase candidate.

Regards,

Jeff

Hi Jeff

You are correct.  I chose to use the 2005 EPS unadjusted to calculate the projected low price. I used this as well as a lower low PE Ratio to be conservative to allow for lower EPS in 2007 if a possible economic downturn should occur.  I was also more conservative on the Hi PE Ratio. I also expect the cost of implementing CSP-2 to continue in 2007 that will negatively impact 2007 EPS while helping assure ongoing longer term growth and profits. So some (maybe most) will view my projected low price of $17.60 to be overly conservative.

I do note the IAS in recommending FAST as a recent buy used numbers similar to yours. So you are in good company.  I hope you are both correct and $1.28 will be the low EPS for FAST as well as the higher PE Ratios and especialy the high price.   

I admit to often being more conservative than many others.  I consider trying to project future events accurately to be quite difficult and thus prefer to be pleasantly surprised on the upside.

I will be surprised if one of the investing gurus does not select Fastenal as one of their 5 investment choices this month and then we will get a look at how that guru (s) views the future of Fastenal.   

On the topic of Fastenal, I recently read where the company was experimenting with a new CSP-3 initiative with a store about 3 times as large as a typical store in their headquarters location in Winona, MN.  The company has said nothing about this.  Does anyone have any knowledge of this new concept store and what it may suggest or may have visited the Winona store?  I am curious since this would indicate a rather significant change in their business model and I wonder if they may not be considering competing beyond their current market to more directly compete with companies like Home Depot.

Dan Hess

Congratulations, Adrienne!

I first met FAST when our club, in 1999, made FAST it's second stock to own (after Pfizer) and it became a real star from then to 2006, when I moved away. I had it in my personal portfolio too, and sold it in 2004 to help finance our retirement home. I have always paid close attention to section 2 of the SSG for this company and I am satisfied that they have a management team in place that can meet adversities. I just bought 100 shares this week after looking at it in Better-Investing and Manifest Investing for about the last 2 months. So maybe we consider things at the same speed! -- Joan