According to the company's website, Fastenal (NASDAQ: FAST, Bullboard) is the fastest-growing full-line industrial distributor and the largest fastener distributor in the nation. The company's service-oriented business network currently includes an in-house Manufacturing Division, a Product Quality Assurance and Engineering Department, a strategic system of 12 distribution centers in the U.S., a fleet of more than 275 company-owned semi-trucks and trailers, and more than 2,160 store locations.

On April 11, the company bested analysts' expectations, posting a 26% rise in first-quarter earnings to 46 cents per share. Revenue rose 16% to $566.2 million from $489.2 million. Historically, the firm is on solid footing, having topped the consensus earnings view by an average of 5% during the prior four reporting periods.

The solid fundamental performance has translated into gains for the shares, as FAST is up more than 24% since the beginning of the year. During this time frame, the shares have enjoyed the support of their 10-day and 20-day moving averages, last closing below this dynamic duo on March 11. The equity is currently consolidating its gains into support at the round-number 50 region. Should FAST hold this key technical level, it could provide a springboard for the equity to extend its rally over the intermediate term.

Compared to the rest of the market, FAST remains an outstanding stock. Since June 2000, the security has easily outperformed the S&P 500 Index (SPX) on a monthly relative-strength basis. What's more, during the prior 60 trading days, FAST has bested the SPX by more than 19 percentage points.

Flying in the face of this solid technical and fundamental performance, investors remain heavily bearish toward FAST. The stock's Schaeffer's put/call open interest ratio (SOIR) of 1.56 indicates that puts easily outnumber calls among near-term options. This ratio also ranks above 75% of all those taken during the past year, indicating that options speculators have been more pessimistic toward FAST just 25% of the time during the prior 52 weeks.

Digging into the stock's open interest configuration, we find that peak call open interest of about 2,800 contracts resides at the at-the-money 50 strike in the May series of options. Peak put open interest for May numbers more than 4,000 contracts and rests at the out-of-the-money 40 strike. This skew toward deep out-of-the-money put open interest indicates that very few investors are looking for a continued run higher from FAST, and is a bullish indicator from a contrarian perspective.

Elsewhere, short sellers could be on the ropes. Currently, more than 10% of FAST's float is sold short, and could provide ample fuel for a short-covering rally. What's more, during the most recent reporting period, the number of FAST shares sold short dropped by about 10.5% to 13.3 million shares. If short sellers continue to buy back their bearish bets, it could provide additional upside pressure for FAST shares.

Finally, Wall Street has yet to jump on the company bandwagon. According to Zacks, seven of the eight analysts following FAST rate the shares a "hold." Upgrades from this negative bunch could pull additional sideline money into the equity, helping to extend the stock's technical strength over the intermediate-to-long term.

By Joseph Hargett

See More Articles by Joseph Hargett of SchaeffersResearch.com

View RSS Feed