It hasn't been a great afternoon session for Tractor Supply investors, who have watched their shares sink by -2.3% to a price of $267.55. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Tractor Supply'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 22.15 and an average price to book (P/B) ratio of 3.11. In contrast, Tractor Supply has a trailing 12 month P/E ratio of 25.8 and a P/B ratio of 12.47.
Tractor Supply's PEG ratio is 3.47, 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.
Strong Revenue Growth but an Average Current Ratio:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (M) | $7,911 | $8,352 | $10,620 | $12,731 | $14,205 | $14,556 |
| Gross Margins | 34% | 34% | 35% | 35% | 35% | 36% |
| Net Margins | 7% | 7% | 7% | 8% | 8% | 8% |
| Net Income (M) | $532 | $562 | $749 | $997 | $1,089 | $1,107 |
| Net Interest Expense (M) | $18 | $20 | $29 | $27 | $31 | $47 |
| Depreciation & Amort. (M) | $177 | $196 | $217 | $270 | $343 | $393 |
| Diluted Shares (M) | 123 | 121 | 117 | 116 | 112 | 110 |
| Earnings Per Share | $4.31 | $4.66 | $6.38 | $8.61 | $9.71 | $10.09 |
| EPS Growth | n/a | 8.12% | 36.91% | 34.95% | 12.78% | 3.91% |
| Avg. Price | $72.63 | $92.69 | $115.77 | $183.19 | $206.81 | $267.55 |
| P/E Ratio | 17.09 | 19.98 | 18.12 | 21.38 | 21.43 | 26.6 |
| Free Cash Flow (M) | $416 | $594 | $1,101 | $510 | $584 | $580 |
| CAPEX (M) | $279 | $217 | $294 | $628 | $773 | $754 |
| EV / EBITDA | 10.44 | 12.07 | 10.2 | 13.05 | 13.09 | 15.6 |
| Total Debt (M) | $176 | $180 | $150 | $150 | $150 | $150 |
| Net Debt / EBITDA | 0.1 | 0.1 | -0.98 | -0.46 | -0.03 | -0.13 |
| Current Ratio | 1.91 | 1.43 | 1.87 | 1.57 | 1.33 | 1.5 |
Tractor Supply has rapidly growing revenues and increasing reinvestment in the business and a strong EPS growth trend. Additionally, the company's financial statements display generally positive cash flows and healthy leverage levels. Furthermore, Tractor Supply has similar gross margins to its peers and just enough current assets to cover current liabilities, as shown by its current ratio of 1.5.
