Tractor Supply’s stock price has taken a beating over the past six months, shedding 46.3% of its value and falling to $29.21 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
Is now the time to buy Tractor Supply, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is Tractor Supply Not Exciting?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons you should be careful with TSCO, plus one stock we’d rather own.
1. Long-Term Revenue Growth Disappoints
A company’s long-term sales performance can indicate its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Tractor Supply grew its sales at a sluggish 2.6% compounded annual growth rate. This was below our standards.
2. 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.
3. Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate pricing power or differentiated products, giving the company a chance to generate higher operating profits.
Tractor Supply has bad unit economics for a retailer, giving it less room to reinvest and grow its presence. As you can see below, it averaged a 36.4% gross margin over the last two years. Said differently, Tractor Supply had to pay a chunky $63.63 to its suppliers for every $100 in revenue.
Final Judgment
Tractor Supply isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 13.9× forward P/E (or $29.21 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the most entrenched endpoint security platform on the market.
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