Over the last six months, Tractor Supply shares have sunk to $51.41, producing a disappointing 7% loss - worse than the S&P 500’s 1.6% drop. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Following the drawdown, is now the time to buy TSCO? Find out in our full research report, it’s free.
Why Does Tractor Supply Spark Debate?
Started as a mail-order tractor parts business, Tractor Supply (NASDAQ: TSCO) is a retailer of general goods such as agricultural supplies, hardware, and pet food for the rural consumer.
Two Positive Attributes:
1. Store Growth Signals an Offensive Strategy
A retailer’s store count often determines how much revenue it can generate.
Tractor Supply operated 2,517 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years, averaging 4.7% annual growth, much faster than the broader consumer retail sector.
When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.
2. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
Tractor Supply’s five-year average ROIC was 35.2%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
One Reason to be Careful:
Flat Same-Store Sales Indicate Weak Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Tractor Supply’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
Final Judgment
Tractor Supply has huge potential even though it has some open questions. After the recent drawdown, the stock trades at 23.4× forward P/E (or $51.41 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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