Tickers in this Article: FAST, TSCO, HD, LOW
For the first quarter of 2010, Fastenal (Nasdaq:FAST) reported a 6.4% lift in sales along with a 15% rise in earnings per share. EPS was 38 cents versus 33 cents in the year ago period. The company opened 29 stores during the quarter and the numbers blew away analysts expectations. As result, shares jumped on the earnings news. Fastenal does a good job of providing great detail on the operations of its stores. Looking over 2009, the company's monthly sales declined by double digits each month in 2009. Even in 2010, monthly sales were down in January and February, up over 7% in March for the first time in over the year.

IN PICTURES: Eight Ways To Survive A Market Downturn

Be Careful what You Wish For
To say that Fastenal is a quality business with quality management may be an understatement. Absent 2009, Fastenal has been a steady growth machine. That's partly due to the company's business model. Fastenal sells items like screws, bolts, nuts and other essential construction material through its retail outlets. Because of its niche focus, Fastenal competes less with the likes of Home Depot (NYSE:HD) and Lowe's (NYSE:LOW). It's variety of fasteners, electric and plumbing supplies is far too vast for the likes of those companies.

Sales have risen steadily for over 10 years, and during that time, EPS lept from 53 cents to $1.24. And since 2000, shares outstanding have declined by nearly 5%. Since Fastenal shares have increased significantly in value during that time, those share buybacks have created value for shareholders.

Too Much of a Good Thing
Shares in Fastenal are now up nearly 100% from their 52-week low price of $29. At $53, shares have now nearly eclipsed their levels prior to the market collapse. Shares currently command a valuation of over 40-times earnings and 28-times forward earnings. Compare that with another specialty retailer Tractor Supply (Nasdaq:TSCO), which trades for 21-time earnings and 16-times forward earnings. Like Fastenal, Tractor Supply continues to grow its top and bottom line.

The Bottom Line
Today, Fastenal is a classic case of a good business that might not necessarily be a good investment at the current price. Even with future growth, no margin of safety appears to exist in the current price. (For more, see The Value Investor's Handbook.)

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