Industrial supply company Fastenal (NASDAQ: FAST) is always closely watched during earnings season because its results come early and the company is seen as a bellwether of the manufacturing sector. As such the stock’s near-5% decline on the day of its earnings release this week might have caused industrial investors to fear the worst. However, on closer inspection the fall appears to be related more to concerns about Fastenal rather than a vote of no confidence in the manufacturing sector. Here’s why.
The key points for investors are:
- Fastenal’s valuation (trading with a trailing price-to-earnings ratio of 31 and a forward P/E of 28) has a lot of optimism built into it, part of which comes from expectations for strong sales of personal protective equipment (PPE).
- Surging PPE sales have diluted gross margins