Investors should stay away from industrial supplier Fastenal while the company does an internal makeover, according to Morgan Stanley. The company is altering its sales strategy, according to the investment firm, and its May sales results were down year over year. Its stock has gained 8% since the start of 2021. Analyst Joshua Pokrzywinski downgraded the stock to underweight from equal weight, saying in a note to clients that the stock had limited upside due to a high valuation and execution risk as it continues the transition. "The company is undergoing a strategy change and potentially has an air pocket of outgrowth given limited net Onsite customer acquisitions over the past year," the note said. "Over time, we believe the majority of these issues are manageable and believe the strategy is adapting to the business environment, but see potential for a tricky handoff at a point in time where valuation and comparisons are demanding." The change comes as Fastenal's stock is trading at high levels relative to its history. Shares have a forward price-to-earnings ration of 32, according to FactSet, well above their historical average. "Valuation is at all time highs on an absolute basis and vs. the S & P 500. This comes at a point when FAST had a much more mild downturn than other cyclicals due to safety and less recovery potential, but also as outgrowth is uncertain amid the points described above," Morgan Stanley said. The investment firm cut its price target on the stock to $48 per share from $53. The new target is 9% below where the stock closed on Monday. -CNBC's Michael Bloom contributed to this report.
Delivery trucks sit parked at loading docks outside the Fastenal distribution center in Jessup, Pennsylvania.
Luke Sharrett | Bloomberg | Getty Images
Investors should stay away from industrial supplier Fastenal while the company does an intern