Friday, February 3, 2012

FAST: Nuts and bolts

Fastenal Co. (FAST) sells industrial and construction supplies, both retail and wholesale. It includes everything from nuts and bolts to hydraulics and welding supplies.

The Winona, Minnesota company has 2,490 stores in 10 countries stretching from North America to East Asia and western Europe.

FAST had the most bullish chart of 16 selected at random from 675 large-cap stocks. (See my essay "10,000 Charts" for a description of how I screen.)

The price has closely mirrored the general market, hitting a $12.94 recession low in March 2009, and then beginning a long march upward to an all-time high of $48.08, set today. In fact, a broader look at the chart shows that FAST has trended upward, with only two major corrections, since it was first traded in 1992.

That shows the power of selling the supplies that people need to do work. A screwdriver and wrench last a long time. Screws, nuts and bolts need to be bought over and over again.

The bad side of the chart is the volume, which reached a near-term peak on Jan. 18 but has declined steadily since then as the price continued to rise. In my book, that shows declining interest in the stock, of the sort that often precedes a fall.

Although the analyst consensus on FAST rates it as a buy, there has been a drop off in bullish sentiment of late.

FAST has a return on equity of 26% -- well into growth-stock territory -- and no long-term debt.

Institutions own 86% of the stock, and the price has been bid up to quite an expensive level. It takes $5 in stock to gain control of $1 in sales. That's about the same as Google price/sales ratio.

FAST is a liquid stock, with average volume of 1.9 million shares. The options selection is a bit limited -- only nine strike prices for March, but the bid/ask spread is quite reasonable. The strikes near the money have three- and four-figure open interest.

Implied volatility is 31%, a low for the past six months, and has been trending downward since last November 2011. I would structure my position as one paying a net credit, basically selling the current volatility in the expectation of buying back a lower volatility.

Next earnings are scheduled for April 11. The company has a quarterly payout worth 1.42% a year, with the next ex-dividend date expected in late April.

Decision for my account: I've opened a bull put spread for March expiration, short the $45 strike and long the $40. The blue-sky chart and excellent financials trumped the declining volume and high price/sales ratio.

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decision decisions for his or her own account, and take responsibility for the consequences.

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