Since June 2024, Tractor Supply has been in a holding pattern, posting a small return of 4% while floating around $284.50. The stock also fell short of the S&P 500’s 12.9% gain during that period.
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 Things to Like:
1. Store Growth Signals an Offensive Strategy
A retailer’s store count influences how much it can sell and how quickly revenue can grow.
Tractor Supply operated 2,475 locations in the latest quarter. It has opened new stores at a rapid clip over the last two years by averaging 5.7% annual growth, much faster than the broader consumer retail sector. This gives it a chance to become a large, scaled business over time.
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 35.4%, 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:
Same-Store Sales Falling Behind Peers
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Tractor Supply’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.1% per year.
Final Judgment
Tractor Supply’s positive characteristics outweigh the negatives. With its shares trailing the market in recent months, the stock trades at 25.8× forward price-to-earnings (or $284.50 per share). Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
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