Caterpillar vs Fastenal Stock: CAT vs FAST Business Models

Most investors size up a company by what it sells. The better question is why customers come back and spend more money. That second question tells you more about a business's long-term compounding than any product ever will.

A grocery store is the easy example. Customers return every week because food gets eaten, and nobody has to be persuaded that they need groceries again. Industrial businesses can work the same way, and two of them make the point well: Caterpillar (NYSE: CAT) and Fastenal (NASDAQ: FAST).

Both live in the same industrial economy. Both sell to manufacturers, contractors and industrial operators. But Caterpillar sells expensive equipment that lasts for decades, while Fastenal distributes thousands of cheap products that customers use up and reorder. One earns from a large purchase and the installed base that follows it. The other earns from repeat purchases and from becoming part of how its customers run their day.

Those are two very different machines for making money.

Caterpillar is the name on the excavators, mining trucks and bulldozers working construction sites, mines and infrastructure projects around the world. Its Power & Energy division adds engines and generation equipment on top of that.

A single Caterpillar mining truck or large excavator can cost hundreds of thousands or millions of dollars. That's a capital decision for the customer, and capital decisions get delayed. A contractor holds off on replacing equipment when the economy softens. A mining company postpones expansion when commodity prices fall. New equipment sales follow the economic cycle, and there's no way around that.

What makes Caterpillar more than a cyclical manufacturer is what each machine generates after it ships. Every excavator needs engine components, filters, hydraulic parts, maintenance, repairs and eventually a major rebuild. An expensive machine sitting idle on a job site costs the owner money every hour, so dependable parts and dealer support are worth paying for.

Services revenues include aftermarket parts and service activity. They aren't subscription or contract revenue, and the 35.5% figure is a simple division for comparison, not a separate reported segment.

Even with that caveat, the point holds. Roughly a third of Caterpillar's revenue comes from machines it already sold. Each new unit in the field adds to a base of future parts and service demand. It resembles the razor-and-blade model, except the razor here is also a very large source of revenue on its own.

Fastenal distributes fasteners, safety equipment, cutting tools and maintenance supplies. Picture a manufacturing plant with 500 employees. Every shift, workers go through gloves, safety glasses, screws, bolts and drill bits, and none of it lasts for decades. The demand refills itself.

Plenty of companies sell those products. What Fastenal did differently was move into the customer's operations. Through FASTVend and FASTBin, it installs vending machines and smart bins on the factory floor. A worker pulls a pair of gloves, the system logs it, and replenishment gets arranged without anyone placing an order. Fastenal stops being a supplier the customer calls and becomes part of the customer's procurement process.

These two measures overlap, so don't add them together. What they show is that close to half of Fastenal's sales already run through systems sitting inside customer facilities.

That changes the switching math. A customer can buy bolts from dozens of competitors. Leaving Fastenal means pulling out vending machines, rebuilding inventory processes and reworking procurement. Nothing about that is impossible, but it's friction, and friction is what keeps a commodity product from being sold on price alone.

Buying a stock is easy. Finding one you may never need to sell is harder.

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A competitive moat is whatever protects a business's profits from competitors over time. Caterpillar and Fastenal both have one, and they couldn't be built more differently.

Caterpillar's moat is engineering, brand, global manufacturing scale, equipment reliability and its dealer network. Building competitive heavy machinery takes enormous capital, specialized knowledge and years of investment. A contractor running a fleet of Caterpillar machines also has a practical reason to stay inside that parts and service ecosystem.

Fastenal's moat has nothing to do with making something competitors can't copy. A bolt is a bolt in most applications, and work gloves are sold everywhere. The edge is getting the right product to the right place at the right time while cutting the customer's purchasing costs and complexity. Logistics, scale, local inventory and integration do the work.

Caterpillar makes products that are hard to replicate. Fastenal makes buying ordinary products hard to replace.

Industrial distribution sounds like a commodity business with no pricing power. Fastenal's 2025 numbers say otherwise.

A company selling gloves and bolts out-earned one of the world's best-known equipment makers on operating margin, and grew twice as fast. The reason is that Fastenal isn't really being paid for the bolt. For a factory, running out of a two-dollar part can stop a production line, and that costs far more than the part. Fastenal gets paid for making sure that doesn't happen, which lets it compete on reliability rather than price.

Caterpillar's model works differently. Factories, engineering and R&D require heavy investment, but that fixed cost base creates operating leverage. When equipment demand rises, higher volumes spread those costs and incremental profits jump. When demand falls, the same leverage works in reverse and margins compress. That swing is a big part of the volatility you accept when you own a cyclical manufacturer.

One caution on the table. A higher operating margin doesn't automatically mean a higher return on invested capital. A full comparison still needs to measure how much capital each company ties up to produce those profits.

Software companies get recurring revenue through subscriptions. The customer commits to a monthly or annual fee. Fastenal has nothing like that. Its customers keep buying because they keep using things up, not because a contract obliges them to.

That distinction matters in a downturn. When factories cut production, they consume fewer supplies, and Fastenal feels it. When contractors and miners postpone equipment purchases, Caterpillar feels it. Neither company is recession-proof.

The difference is what drives each one. Fastenal's sales track ongoing industrial activity. A larger share of Caterpillar's sales depends on capital-investment decisions, and those can be pushed back a year or two with a single meeting. That gives Fastenal the potential for a steadier demand profile, though industrial supplies are still far more cyclical than groceries. Plants close, shifts get cut and maintenance gets deferred. Even so, nobody has to be talked into buying another box of gloves after using the last one.

For a long-term holder, the useful question is how each company grows revenue from customers it already has.

Caterpillar's path:

→ Sell more equipment into growing industries
→ Expand Power & Energy
→ Capture more parts and service revenue from machines already in the field

Fastenal's path is quieter:

→ A customer might start buying only fasteners.
→ Over time, Fastenal adds safety supplies, then cutting tools, then maintenance products, then another vending machine on a second floor.

Revenue per customer climbs without the cost of winning a new account. Acquiring customers is expensive, and a business that grows by deepening existing relationships has a cheaper engine than one that has to keep hunting.

Caterpillar compounds through its installed base and the lifetime value of every machine it sells. Fastenal compounds through wider relationships and constant consumption.

Investors who skip this step end up overpaying for excellent companies. Predictable demand, high margins and real growth runway don't protect you if you pay too much for them. Fastenal's quality is easy to see, and the market usually charges for it. Caterpillar's cyclicality is easy to see too, and that's what creates buying opportunities when expectations get too low.

The usual tool for judging price is the P/E ratio, and I don't lean on it. Earnings swing with the cycle, and the multiple the market puts on them is a bet on future growth that may or may not show up. For Caterpillar especially, a P/E can look cheap at the peak of the cycle and expensive at the bottom, which is the opposite of what you want it to tell you.

Dividend yield compared to the stock's own historical average is a steadier read. Both companies pay a dividend and both have raised it over time, so the yield ties price back to cash actually paid out. Averaging it over five or ten years smooths out any single good or bad year and gives you a realistic normal for that specific business.

A healthy stock keeps that ratio roughly intact:

→ Revenue grows
→ The dividend grows with it
→ The price rises alongside the dividend
→ The yield stays near its long-term average

When the yield drifts well below its average, the price has run ahead of the business. Say a stock has averaged a 2.0% yield over ten years and now yields 1.4%. Getting back to normal takes either a 30% drop in price, or a 43% increase in the dividend while the price goes nowhere. At 8% annual dividend growth, that's close to five years of waiting. That's what overpaying for a great business looks like in practice, and it's why the price paid at the start shapes your return as much as the company does.

A yield well above its average needs a closer look before it counts as a bargain. Sometimes the market has overreacted, which happens often with a cyclical name like Caterpillar. Sometimes the yield is high because the market doubts the dividend will keep growing. The check is whether revenue and earnings are still growing enough to support the payout. If they are, the stock is likely cheap. If they aren't, the high yield is a warning.

So keep two separate questions. First, how good is the business: its moat, its customer relationships, its capacity for durable earnings growth. Second, does today's price offer a decent return on that business. Blending them together is how good companies become bad investments. Moats also wear down over time, the same way a "forever" dividend stock can quietly become a weaker holding, so the first question needs revisiting, not just answering once.

On business model alone, Fastenal. Selling products customers use up, while becoming more embedded in how they buy them, is a very strong setup for steady compounding. It doesn't need the customer to make another major capital decision every time it wants a sale.

Caterpillar is no weak business. Its engineering, dealer network, brand and installed base are serious barriers to entry, and the aftermarket makes it far more resilient than a pure equipment maker. Fastenal is a repeat-purchase compounder. Caterpillar is an installed-base and capital-investment compounder. Both have created real shareholder value, with different growth patterns, capital needs and exposure to the cycle.

Choosing between the stocks is a separate job. That takes return on invested capital, free cash flow, earnings growth and current valuation, the same checklist that shows up across the businesses superinvestors hold for decades. Business quality only turns into shareholder returns at the right price.

The customer relationship is worth more than the first sale.

I currently lean on Fastenal, but Caterpillar has a moat too.

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