EP.014: Why 40x Earnings May Not Hold | Fastenal Deep Dive

Welcome back to another episode of Pitch The PM. In this conversation, Doug reconnects with former Citadel colleague, Yuri Gelfman, for a deep dive on Fastenal ($FAST), a core name in the industrial distribution space. Yuri brings over a decade of coverage experience and shares why, despite Fastenal’s reputation as a high-quality compounder, the stock’s recent move to ~40x forward earnings looks stretched. They walk through the company’s evolution from branch-led growth to vending and on-site inventory management, why those growth engines may be plateauing, and how mean reversion on valuation could play out as comps normalize. Along the way, Yuri outlines the KPIs he tracks, the catalysts that matter, and the risks to his variant view. 

What ACTION do I want the Portfolio Manager to take? Sell or short FAST. A high-quality industrial distributor, but the multiple (~40x forward EPS) has run far ahead of fundamentals, with vending/on-site growth engines slowing.

Do I UNDERSTAND this business? Yes. Covered FAST for 10+ years with multiple management meetings. Distributor of fasteners (~30% of mix), safety (~20%+), tools, and MRO products. ~85% U.S. sales, core end markets in machinery, fabricated metals, and primary metals. Growth shifted from branches to vending/on-site inventory management.

Is the stock available at a REASONABLE price today? No. FAST trades at ~40x 2026 EPS vs a long-term average of 24–27x, despite lower growth prospects ahead.

Why is this stock MIS-PRICED? Street extrapolated short-term YoY sales acceleration (2–3% in Jan → 12–13% by July) and bid up the stock. But on a 3-yr stack, growth has held flat (~17–18%). Market also lumped FAST in with industrial re-acceleration plays and “quality compounder” sentiment.

What is the VARIANT VIEW vs the street? Street sees momentum and durable vending growth. Variant view: vending productivity growth has collapsed (+24% CAGR 2014–22 → +5% in 2023 → –3% in 2024) and vending install growth is slowing (guidance cut to ~25.5k from 29k). With vending plateauing and mix shifting to lower-margin categories, FAST can’t justify a 40x multiple.

What is the EVIDENCE? Company disclosures: vending install and productivity KPIs, monthly sales, and gross margin data. June +9.8% YoY, July +12.8%, Aug +11.8% — but on a 3-yr stack: Q1 16.8%, Q2 17.0%, Jul 17.5%, Aug 18.3% = no true acceleration. Branch-based revenue CAGR only ~2.5% over the last decade.

What are the CATALYSTS for the street to realize the view? Monthly sales releases (stock dropped 4%+ on Aug miss), quarterly earnings, vending KPI deterioration, gross margin pressure from mix shift to large customers and safety SKUs.

What is it WORTH if the bet is right? Near term (6–9 months): low-30s P/E multiple, implying ~20–25% downside. Medium term: if vending slowdown proves structural, sub-20x multiple is possible, EPS CAGR just 2–4%, suggesting 40–50% downside.

What is the OTHER SIDE of the bet? Management execution could reinvigorate vending/on-site strategy, or industrial short-cycle recovery could extend momentum. Strong cultural alignment and historical execution track record may keep the multiple elevated longer.

Is management ALIGNED with ownership? Yes. Incentives tied to gross profit growth and SG&A control. Long-tenured management team, significant stock ownership. No red flags on alignment.

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Doug Garber on LinkedIn: https://www.linkedin.com/in/doug-garber-42aa508 

Not Investment Advice. 

At the time of initial episode publication, the host had a short position in FAST. This may change at any time and there is no obligation to update you.