It is hard to get excited after looking at Fastenal’s (NASDAQ:FAST) recent performance, when its stock has declined 13% over the past month. However, stock prices are usually driven by a company’s financials over the long term, which in this case look pretty respectable. Particularly, we will be paying attention to Fastenal’s ROE today.
ROE or return on equity is a useful tool to assess how effectively a company can generate returns on the investment it received from its shareholders. Simply put, it is used to assess the profitability of a company in relation to its equity capital.
Return on equity can be calculated by using the formula:
Return on Equity = Net Profit (from continuing operations) ÷ Shareholders’ Equity
So, based on the above formula, the ROE for Fastenal is:
31% = US$1.2b ÷ US$3.9b (Based on the trailing twelve months to September 2025).
The ‘return’ is the yearly profit. One way to conceptualize this is that for each $1 of shareholders’ capital it has, the company made $0.31 in profit.
View our latest analysis for Fastenal
So far, we’ve learned that ROE is a measure of a company’s profitability. Depending on how much of these profits the company reinvests or “retains”, and how effectively it does so, we are then able to assess a company’s earnings growth potential. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don’t necessarily bear these characteristics.
To begin with, Fastenal has a pretty high ROE which is interesting. Second, a comparison with the average ROE reported by the industry of 13% also doesn’t go unnoticed by us. This likely paved the way for the modest 7.4% net income growth seen by Fastenal over the past five years.
As a next step, we compared Fastenal’s net income growth with the industry and were disappointed to see that the company’s growth is lower than the industry average growth of 19% in the same period.
Earnings growth is a huge factor in stock valuation. The investor should try to establish if the expected growth or decline in earnings, whichever the case may be, is priced in. This then helps them determine if the stock is placed for a bright or bleak future. If you’re wondering about Fastenal’s’s valuation, check out this gauge of its price-to-earnings ratio, as compared to its industry.
