2 Reasons to Like TSCO and 1 to Stay Skeptical

Tractor Supply trades at $57.26 per share and has stayed right on track with the overall market, gaining 11.4% over the last six months. At the same time, the S&P 500 has returned 16.3%.

Is now the time to buy TSCO? Find out in our full research report, it’s free for active Edge members.

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 influences how much it can sell and how quickly revenue can grow.

Tractor Supply sported 2,570 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 3.5% annual growth, among the fastest in the 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 32.7%, 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, but at $57.26 per share (or 24.7× forward P/E), is now the right time to buy the stock? See for yourself in our full research report, it’s free for active Edge members.

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