Fastenal grew sales 15.5% with record profit growth, but temporary margin help and fading pricing leave 37 times 2027 profit too rich. I see 19% downside to $42.23.
Key points
- $2.46 billion in quarterly sales grew 15.5% from last year on large-customer wins and pricing help.
- 21.5% operating margin (profit after running costs) rose as sales grew faster than staff and building costs.
- 20 basis points of margin (a fifth of a point) came from temporary refunds and rebates that should fade.
The call
The market is too optimistic about growth from here. At current levels the stock trades at about 37 times my 2027 profit estimate. That pricing needs profit about 23% above my estimate to look normal for a distributor.
Quarterly revenue ($ billions) and operating marginSEC XBRL facts plus Oct 14 8-K; Q4 FY26E is author's estimate.
Growth will cool as pricing help fades and big customers squeeze margins. I expect 2027 sales near $10.07 billion. Profit should reach $1.41 per share. Onsite wins keep compounding, but not fast enough to defend today's multiple.
Valuation
| Item | My estimate |
|---|
| 2026 sales | $9.33 billion |
| 2026 profit | $1.29 per share |
| 2027 sales | $10.07 billion |
| 2027 profit | $1.41 per share |
| Multiple | 30 times profit |
| Target | $42.23 per share |
Target at different multiples on $1.41 profitAuthor's FY27 EPS $1.41 times each multiple. As of Oct 14, 2026.
I use 30 times profit (price divided by profit), near top distributors with faster growth. Fastenal earns a premium for 32% returns on capital, but not 37 times. At 19% downside the risk favors a sell.
Risks
- Large-customer mix could cut product profit more than expected. Watch quarterly gross margin (profit after product costs) for renewed decline.
- Industrial demand could slow after soft September sales. Watch monthly sales growth and contract customer growth for fading.
- Fuel and freight costs could outrun pricing again. Watch price versus cost comments and expense leverage each quarter.
What would change my mind
I would turn neutral if daily sales stay above 15% without pricing help while gross margin (profit after product costs) holds flat.