Make no mistake - Fastenal (Nasdaq:FAST) is a great company, and a good play on the consolidation of the industrial supply market. That said, Fastenal's stock carries a valuation more commonly seen in hot technology stocks than in the industrial sector. Consequently, while I do believe Fastenal has a runway to becoming one of the largest players in a market worth over $150 billion, the stock already seems to be assuming a great future.

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In-Line Good Enough
Fastenal just barely made the numbers for its third quarter, and ordinarily you might think that would be bad news for a company with a robust valuation. Whisper numbers had been heading lower, however, and I suspect that there was more than a little relief that underlying fundamentals were actually pretty solid this quarter.

Revenue rose a little more than 10% this quarter. Although that was very slightly below expectations, I suspect investors and analysts will be more encouraged by the recovery in daily sales growth - September sales perked up nearly 13% versus 12% in August.

Profits continue to be a mixed bag. Gross margin slid again (down 30 basis points), but is still in the target zone of 51% to 53%. Likewise, the company is still executing well with its operating expenses, as operating income rose 13% and the operating margin expanded another 60 basis points.

SEE: A Look At Corporate Profit Margins

Still Building the Business
Fastenal continues to increase its footprint. The company contracted more than 5,300 vending machines this quarter, bringing its total cumulative installations to over 17,000. At the same time, while the pace of new store openings has slowed, the company has nevertheless opened 73 so far this year.

Both of these remain key metrics for Fastenal and are core to the company's growth plans. While Grainger (NYSE:GWW) and MSC Industrial (NYSE:MSM) are both growing their vending/dispensing businesses, Fastenal has done exceptionally well with it. Elsewhere, while I think some analysts and investors may make too much of the advantages offered by Fastenal's local stores (it's not as though the stores can carry complete inventories), it does offer an immediate sales channel that the delivery-based models of MSC Industrial and Amazon (Nasdaq:AMZN) can't match.

Near-Term Challenges, Long-Term Opportunities
When trying to think about what constitutes fair value for Fastenal, there's always this push and pull between near-term and long-term potential. Right now, the company probably has about 2% share of the huge (and hugely fragmented) industrial supply market. Even if companies like Anixter (NYSE:AXE), Applied Industrial Technologies (NYSE:AIT), MSC Industrial and Amazon try to get into Fastenal's wheelhouse (be it through more focus on fasteners, vending machines or what have you), there's ample room to grow.

On the other hand, fastener sales have been slowing a bit. What's more, it's hard to see how the U.S. industrial sector can just keep on growing if Europe and China don't start seeing better economic health relatively soon. Then again, ISM has been improving a bit and broader economic measures are still basically positive.

The Bottom Line
I have no qualms projecting ongoing strong growth for Fastenal, as I do believe it can more than double its market share over my forecast period. The company is years away from saturating its store base, and that's assuming that the company doesn't try taking the concept outside U.S. borders. Even if the company starts seeing less new store growth potential, it will reap better free cash flow from the lower capex demands.

SEE: 5 Must-Have Metrics For Value Investors

Consequently, I'm comfortable with mid-teens free cash flow growth projections, even though I acknowledge that that's a very demanding goal. Unfortunately, even that level of growth doesn't come close to making these shares cheap. At these valuations, I'd be more inclined to buy shares of MSC Industrial (which I do own) or WESCO (NYSE:WCC), though I'd be in no particular hurry to sell Fastenal shares if I owned them (what makes for a good hold is not always the same as a good buy).

At the time of writing, Stephen D. Simpson owned shares of MSC Industrial since 2006.

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