On September 20, 2023, Tractor Supply Co (TSCO, Financial) recorded a day's change of -1.04% and a 3-month loss of -3.51%. Despite this, the company boasts an impressive Earnings Per Share (EPS) of 10.01. But is the stock modestly undervalued? In this article, we'll delve into a comprehensive valuation analysis of Tractor Supply Co (TSCO).
Company Introduction
Tractor Supply Co is the largest operator of retail farm and ranch stores in the United States, primarily targeting recreational farmers and ranchers. As of fiscal 2022, the company operates 2,181 namesake banners in 49 states, along with 192 Petsense by Tractor Supply stores and 81 Orscheln Farm and Home stores. Its revenue streams are primarily from livestock and pet (50%), hardware, tools, and truck (19%), and seasonal gift and toy (21%).
Understanding GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. It is computed based on historical multiples, a GuruFocus adjustment factor based on the company's past returns and growth, and future business performance estimates.
Tractor Supply Co (TSCO, Financial)'s stock is believed to be modestly undervalued according to the GF Value calculation. With a current price of $207.96 per share and a market cap of $22.60 billion, the stock's future return is likely to be higher than its business growth due to its relative undervaluation.
Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before purchasing its shares. Tractor Supply Co has a cash-to-debt ratio of 0.13, ranking worse than 76.79% of 1103 companies in the Retail - Cyclical industry. GuruFocus ranks Tractor Supply Co's financial strength as 6 out of 10, indicating a fair balance sheet.
Profitability and Growth
Investing in profitable companies carries less risk. Tractor Supply Co has been profitable 10 years over the past 10 years, with revenues of $14.80 billion and Earnings Per Share (EPS) of $10.01. Its operating margin of 9.95% is better than 78.86% of 1107 companies in the Retail - Cyclical industry. GuruFocus ranks Tractor Supply Co's profitability as strong.
Growth is a crucial factor in a company's valuation. The 3-year average annual revenue growth rate of Tractor Supply Co is 22.3%, ranking better than 84.45% of 1048 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is 26.8%, ranking better than 76.87% of 895 companies in the Retail - Cyclical industry.
ROIC vs. WACC
Comparing a company's Return on invested capital (ROIC) and the weighted average cost of capital (WACC) can provide insights into its profitability. For the past 12 months, Tractor Supply Co's ROIC is 18.34, and its cost of capital is 7.43.
Conclusion
In summary, the stock of Tractor Supply Co (TSCO, Financial) is believed to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 76.87% of 895 companies in the Retail - Cyclical industry. To learn more about Tractor Supply Co stock, check out its 30-Year Financials here.
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