Tractor Supply Co (TSCO, Financial) recently experienced a daily loss of -2.71%, with a 3-month gain of 4.64%. Its Earnings Per Share (EPS) stands at 10.01. But the question remains, is the stock modestly undervalued? This article aims to explore the intrinsic value of Tractor Supply Co (TSCO) using the GuruFocus valuation method. Read on for a comprehensive analysis.
A Snapshot of Tractor Supply Co
Tractor Supply Co is the leading operator of retail farm and ranch stores in the United States. The company primarily serves recreational farmers and ranchers, with limited exposure to commercial and industrial farm operations. As of fiscal 2022, Tractor Supply Co operates 2,181 namesake stores in 49 states, alongside 192 Petsense by Tractor Supply stores, and 81 Orscheln Farm and Home stores. The stores are predominantly located in rural communities, as opposed to urban and suburban areas. The company's revenue primarily comes from livestock and pet (50%), hardware, tools, and truck (19%), and seasonal gift and toy (21%) sales.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is computed based on historical multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
According to our valuation method, Tractor Supply Co (TSCO, Financial) is estimated to be modestly undervalued. The stock's fair value is estimated based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. At its current price of $216.92 per share, Tractor Supply Co has a market cap of $23.60 billion. Because Tractor Supply Co is relatively undervalued, the long-term return of its stock is likely to be higher than its business growth.
Examining Financial Strength
Before investing in a company, it's crucial to check its financial strength. Companies with poor financial strength pose a higher risk of permanent loss. The cash-to-debt ratio and interest coverage are great indicators of a company's financial strength. Tractor Supply Co has a cash-to-debt ratio of 0.13, which is worse than 77.18% of 1100 companies in the Retail - Cyclical industry. The overall financial strength of Tractor Supply Co is 6 out of 10, which indicates that the financial strength of Tractor Supply Co is fair.
Profitability and Growth
Investing in profitable companies poses less risk, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Tractor Supply Co has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $14.80 billion and Earnings Per Share (EPS) of $10.01. Its operating margin is 9.95%, which ranks better than 78.12% of 1097 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks the profitability of Tractor Supply Co at 10 out of 10, which indicates strong profitability.
One of the most important factors in the valuation of a company is its growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Tractor Supply Co is 22.3%, which ranks better than 83.97% of 1048 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth is 26.8%, which ranks better than 77.05% of 902 companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) is another way to look at its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Tractor Supply Co's return on invested capital is 18.34, and its cost of capital is 7.2.
Conclusion
In conclusion, the stock of Tractor Supply Co (TSCO, Financial) is estimated to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 77.05% of 902 companies in the Retail - Cyclical industry. To learn more about Tractor Supply Co stock, you can check out its 30-Year Financials here.
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