We've been asking ourselves recently if the market has placed a fair valuation on Tractor Supply Company. Let's dive into some of the fundamental values of this large-cap Consumer Discretionary company to determine if there might be an opportunity here for value-minded investors.
Tractor Supply Company's Valuation Is in Line With Its Sector Averages:
Tractor Supply Company operates as a rural lifestyle retailer in the United States. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Tractor Supply Company has a trailing 12 month P/E ratio of 20.2 and a P/B ratio of 10.58.
Tractor Supply Company's PEG ratio is 2.53, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
A Pattern of Improving Cash Flows With a Flat Trend:
| 2018-02-22 | 2019-02-21 | 2020-02-20 | 2021-02-18 | 2022-02-17 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $7,256 | $7,911 | $8,352 | $10,620 | $12,731 | $14,205 |
| Gross Margins | 34.0% | 34.0% | 34.0% | 35.0% | 35.0% | 35.0% |
| Operating Margins | 9% | 9% | 9% | 10% | 10% | 10% |
| Net Margins | 6.0% | 7.0% | 7.0% | 7.0% | 8.0% | 8.0% |
| Net Income (MM) | $423 | $532 | $562 | $749 | $997 | $1,089 |
| Net Interest Expense (MM) | -$14 | -$18 | -$20 | -$29 | -$27 | -$31 |
| Depreciation & Amort. (MM) | -$166 | -$177 | -$196 | -$217 | -$270 | -$343 |
| Earnings Per Share | $3.3 | $4.31 | $4.66 | $6.38 | $8.69 | $9.71 |
| EPS Growth | n/a | 30.61% | 8.12% | 36.91% | 36.21% | 11.74% |
| Diluted Shares (MM) | 128 | 123 | 121 | 117 | 115 | 112 |
| Free Cash Flow (MM) | $871 | $971 | $1,027 | $1,687 | $1,766 | $2,129 |
| Capital Expenditures (MM) | -$239 | -$276 | -$215 | -$292 | -$627 | -$772 |
| Net Current Assets (MM) | $205 | $271 | -$1,934 | -$1,867 | -$2,514 | -$3,290 |
| Long Term Debt (MM) | $434 | $381 | $366 | $984 | $986 | $1,164 |
Tractor Supply Company has a pattern of improving cash flows, healthy debt levels, and a strong EPS growth trend. However, the firm has slimmer gross margins than its peers. Finally, we note that Tractor Supply Company has weak revenue growth and a flat capital expenditure trend, weak operating margings with a stable trend, and just enough current assets to cover current liabilities.
