(FORTUNE Magazine) – When Bob Kierlin, CEO of Fastenal Co., recently had to dash out to California from company headquarters in Winona, Minn., he didn't even think about flying first class. Or coach, for that matter. Kierlin, who owns $234 million of Fastenal stock, did what he always does: drove the entire 5,000-mile roundtrip in one of the company's Dodge Caravan minivans. Along the way Kierlin and CFO Dan Florness dined at Burger King, Subway, and Arby's, largely because the company doesn't reimburse employees for road meals. "You have to eat whether you're traveling or not," reasons the soft-spoken Kierlin as he looks out from his office over the marshes and backwaters of the Mississippi River. Kierlin and Florness doubled up at Days Inns and other cheap digs. "We're up at 5 a.m.," explains Kierlin, "so we're not in the room for more than eight hours."

There's more. Kierlin gets paid a piddling $120,000 annually, an amount that has remained constant for the past ten years. No options. No bonuses. And no long-term incentives. "Obviously I don't need the extra pay because my net worth is tied up in the stock," Kierlin says. "When the stock goes up, I'm compensated more than I could ever pay myself."

Kierlin, 58, marches to his own drummer in his personal life as well. He garbs himself in secondhand suits, doles out scads of stock anonymously to charity, and, on the side, pens such inspirational tracts as The Unified Theory of Life, extolling the benefits of free markets, family values, parochial schools, and Fastenal's work ethic. He loves to talk about his days in the Peace Corps but counts himself a great admirer of right-wing radio mouth Rush Limbaugh. Says Kierlin, wearing his trademark short-sleeve shirt and high-water pants: "I've never heard anything that I disagree with him about."

All this would be of only passing interest except for one fact: Kierlin presides, in his curious way, over one white-hot sizzler of a growth company. Profits have risen 38.1% annually over the past five years, to $32.5 million, on annual sales growth of 35.9%, to $287.7 million. Total return to shareholders over that same period: 39.3% annually, or more than Coca-Cola or General Electric. Fastenal's stock is trading at around $53, a stratospheric 52 times trailing 12-month earnings, a higher P/E than Microsoft's, Dell Computer's, or Compaq's.

What's more, Fastenal has posted these stunning results from one of the most mundane lines of business imaginable. It peddles nuts and bolts--49,000 different kinds of fasteners, from grade 8 hex nuts to weld studs to pin bolt drive anchors--in 620 stores across the U.S. and Canada. Gross margins are 53%, a full 15 points higher than those of rivals.

Fastenal doesn't rely on walk-in customers, who aren't missing much. The ragged Hackensack, N.J., branch, for example, is squeezed into an alley between Joe's Auto Service and a barbed-wire-topped fence. A pair of abandoned couches are in front, and the bathroom window is broken. But there's more than corporate parsimony reflected here. Kick around the Hackensack branch, admittedly scruffier than most, and you'll find plenty of signs of commonsense entrepreneurialism. The file cabinet and bookshelves in the main office, for instance, are the result of sweat equity. "A friend of mine needed some help moving furniture," says assistant manager Hobie Price, 23, proudly. "We helped him out and got both for free."

Then there's the inventory: Price and branch manager Keith Gleaves, 24, decide what they'll sell and where they'll get it. Should they feel they can get a better deal on, say, metric flat washers by going directly to approved suppliers, they are free to do so. Fastenal branches bypass the company's central purchasing department in Winona on an astounding 42% of sales. "I can buy anything, anywhere, for my customers, as long as it's legal," quips Price. "If a customer wants ten TVs, I'll send someone over to the Wiz to buy them."

Management-level decision-making is constantly pushed down to entry-level positions. Take, for instance, an inventory snag Gleaves and Price helped fix: Fastenal's New Jersey branches used to receive goods twice a week from the regional distribution hub in Scranton. But that infrequent schedule often left the branches without the right kinds of fasteners on hand. "We decided we could increase sales by having deliveries every day," recalls Gleaves. Branch staffers decided to alternate driving to the hub themselves, to ensure they were all properly stocked.

Once you grasp the Fastenal spirit, you understand the effectiveness of its modus operandi: Furnish customers with exemplary service and charge 'em top dollar. The premium pricing works, in part, because the lion's share of Fastenal sales are replacement parts for industrial and other kinds of machines. When something breaks, Fastenal employees come through. Take Machinery Services Corp. of Paterson, N.J., which repairs pumps and production equipment. This past summer it ran out of stainless steel U bolts. "They weren't in stock, and none were coming in the next day," recalls Gleaves. "I drove to the hub at 2 a.m. to get them." So Machinery Services had the U bolts in hand by 6:30 a.m. at a price of $8 each. (Rivals charge about 75 cents less.) Says Rich Schmidt of Machinery Services: "As far as Fastenal goes, we never get told no." That kind of service buys loyalty, of course. But it also lets Fastenal charge a premium on its wares. The manager of a paper mill is unlikely to haggle over the price of a $3 bolt when one of his machines is down.

Fastenal peddles nuts and bolts elsewhere as well: specifically, to construction outfits and original equipment manufacturers, which often outsource inventory functions to Fastenal. But you could say Fastenal's secret weapon is its manufacturing division, which will cut, machine, or mold virtually any kind of fastener or other product that Fastenal can't get its hands on. If you're in a rush, a Fastenal "SWAT team" will take the raw material and--in hours--push an order through the production process. Such custom manufacturing accounts for just 4% of revenues, but it is an effective sales tool. Managers carry samples on calls to drive home the idea that Fastenal can, and will, do anything for customers.

Because of Fastenal's rapid growth, new employees often work as little as six months before being given their own store to manage. Compensation for salespeople, after just three or so years on the job, is likely to be evenly split between bonus and base salary. But this being Fastenal, employees don't expect much in the way of perks. There is no stock option, 401(k), or other pension plan available. Says Kierlin: "I believe employees should be responsible for their own retirement."

Fastenal's focus on employee empowerment has its roots in the life lessons of its CEO. Quiet, almost taciturn, Kierlin--"B.K." as he's known around Fastenal headquarters--got started in the nuts-and-bolts business at age 7, sweeping floors at his father's auto parts supply store. By age 11 he was a counter boy, dreaming not of baseball or college, but of running a factory. "I remember asking the parts people in my father's shop which of their parts were selling best," muses Kierlin with a smile. "They didn't know."

After graduate school in engineering and a stint in the Peace Corps, Kierlin joined IBM in Rochester, Minn. It was, he says, a bad experience, a lesson in how not to treat employees. "Nobody got to make any decisions," recalls Kierlin, his deep-set eyes flashing a momentary glint of anger.

Kierlin searched for a business concept that would get him out of IBM--and back to his beloved riverside hometown of Winona. The big idea: a vending machine that would sell nuts, bolts, and other fasteners. He eventually raised $30,000 with four card-playing buddies, now all directors of the company. Confesses one of them, investor relations officer Stephen Slaggie: "I thought it was going down a rat hole." Then the big problem: The potentially best-selling products at the time, like an 18-inch threaded fastener, couldn't possibly fit in a machine. Kierlin instead opened a store, and in 1967 Fastenal was born.

Keeping on top of Fastenal's hypergrowth is a tough proposition. Kierlin still shows up before 6 a.m. to get a computer printout of every store's results. Then, every day, Kierlin speed-dials any new store with daily sales over $5,000, or older ones with sales over $10,000, to congratulate the manager. He's also likely to pop into Fastenal stores as he tools around the country in one of the company's minivans. Kierlin makes sure Fastenal's structure remains flat: There are only three management levels between branch managers and Kierlin's No. 2, President Will Oberton, 39, who laughs at the sobriquet of heir apparent: "B.K. will never retire."

Fastenal's $9 million initial public offering--propitiously launched in August 1987, just months before the market crash--gave it the capital to shift into high gear. But the offering also opened up the door to naysayers, shortselling investors convinced that the pedestrian business of nuts and bolts can't possibly support Fastenal's sky-high stock multiples much longer. Today there is a short position on about 10% of the company's outstanding shares, among the highest on the Nasdaq stock market. The shorts express a number of reasons, some of them not at all illogical, why they think Fastenal stock will eventually slump: The labor market is too tight for continued growth; Fastenal's expansion is burning up too much capital; Home Depot will squash it. Says one Wall Street skeptic who now holds a substantial short position: "This stock has defied gravity for too long."

Kierlin answers each worry by pointing to past results and says only, "It's a free market." He has cost shorts enormous amounts of money so far, and despite the fact that Fastenal has come up shy on four of the past five earnings forecasts, the stock barely budges.

One big Wall Street concern: that Fastenal's breakneck growth will soon saturate the $7 billion fastener market. In fact, it's long been a worry of Kierlin's as well. Says he: "We thought that 25,000 was the smallest population to justify our presence in a town. So we were looking at what we were going to do after we came to all those communities."

The elegant solution, in anticipation of some future saturation point, was to piggyback new product lines onto existing Fastenal stores. The first one to hit the shelves in 1993 was a power tool category--saws, drills, and sanders--which it sold under the retail FastTool banner. Naturally, people are more likely to comparison-shop for tools, which cost $150 and up, than they are for $3 nuts and bolts. But customers seldom haggle over accessories like drill bits, saw blades, sandpaper, and safety accessories: The margins on such products rival those of the fastener line.

FastTool was just the first new retail line. The company followed up with six others, and more are on the way. Fastenal branch managers, as you'd expect, decide which product lines will work in their locale. But it's fair to say that making the new lines work is key to Fastenal's continued manic expansion. Adding the new products allows Fastenal stores to become profitable from ever smaller population bases. As Kierlin puts it, "With two product lines we can open stores in communities of 8,000, and with all our product lines we can go down to communities with populations of just 2,000." Kierlin feels time is on Fastenal's side because its oldest stores are also its most profitable ones. He calculates that bumping up per capita companywide sales to what they are in Fastenal's three original states of Minnesota, Iowa, and Wisconsin would result in total company sales of $2.5 billion. And if he could boost per capita sales to what they are in the company's original store in Winona, Fastenal would post $25 billion in sales.

According to Kierlin, though, his company's success has nothing at all to do with nuts, bolts, margins, or new product lines. "Just believe in people, give them a chance to make decisions, take risks, and work hard," he says. "We could have made this work selling cabbages."