Fastenal (FAST) is an interesting company with decent fundamentals lately. But given the high valuation and risk from a slow economy and tough competition, investors should lay off FAST stock for now.

There’s a lot to like about Fastenal, don’t get me wrong. Several months ago, I visited a manufacturing plant in Texas that used vending machines to provide Fastenal products to workers — including nuts and bolts, screws, studs, washers, rivets, and so on. The plant manager said it has added a lot to worker efficiency so clearly Fastenal is on to something with this vending machine model.

Also, Fastenal offers all kinds of stuff for farmers, truckers, railroads, miners, schools, and the government. This diversity of products has helped the company do well even in this sluggish economy and weak manufacturing.

Furthermore, Fastenal just reported decent earnings.  Adjusted EPS rose 7.9% YOY, on a 5.3% increase in sales.  Daily sales to manufacturing customers grew 5.9%, well down from the 15.8% a year ago, due to economic uncertainty.  But those vending machines are doing well.  They now have almost 30,000 of them installed and they account for 30% of company sales.  The company also signed another 5,272 new vending machine contracts, so this initiative is nicely augmenting the company’s 2,677 store base.

So why worry about this stock, then, after this great stuff?

Well, the company’s biggest threat besides the economy is competition. There are other industrial supply companies out there including MSC Industrial (MSM), and there’s also Grainger (GWW) and Illinois Tool Works (ITV).  So Fastenal cannot sit back and rest.

And alas, Fastenal stock comes at a hefty price.  Fifteen analysts foresee 16% long term growth, but even on this year’s earnings of $1.57 per share, and factoring in a tiny premium for good cash flow and brand name, I have a hard time valuing the stock at more than $30 per share.  It trades at – GULP — $46.

So to me, Fastenal looks like it’s a good investment to add if the market ever tanks. The company is on solid ground financially.  Q2 saw $53 million in operational cash flow, and $120 million in FCF so far this year.  There’s $123 million in cash on the balance sheet, and what’s this – no debt!  Nice.

But right now, I just don’t think the stock is fairly valued. Move slow on FAST for now.

Lawrence Meyers does not own shares of any company mentioned.