Is Tractor Supply Company Destined for Greatness?

Let's see what the numbers say about Tractor Supply.

Apr 14, 2014 at 9:29AM

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Tractor Supply Company (NASDAQ:TSCO) fit the bill? Let's look at what its recent results tell us about its potential for future gains.

What we're looking for
The graphs you're about to see tell Tractor Supply's story, and we'll be grading the quality of that story in several ways:

  • Growth: Are profits, margins, and free cash flow all increasing?
  • Valuation: Is share price growing in line with earnings per share?
  • Opportunities: Is return on equity increasing while debt to equity declines?
  • Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you
Now, let's look at Tractor Supply's key statistics:

TSCO Total Return Price Chart

TSCO Total Return Price data by YCharts.

Passing Criteria

3-Year* Change


Revenue growth > 30%



Improving profit margin



Free cash flow growth > Net income growth

(8.4%) vs. 95.4%


Improving EPS



Stock growth (+ 15%) < EPS growth

189.9% vs. 106.5%


Source: YCharts.
*Period begins at end of Q4 2010.

TSCO Return on Equity (TTM) Chart

TSCO Return on Equity (TTM) data by YCharts.

Passing Criteria

3-Year* Change


Improving return on equity



Declining debt to equity



Dividend growth > 25%



Free cash flow payout ratio < 50%



Source: YCharts.
*Period begins at end of Q4 2010.

How we got here and where we're going
We last looked at Tractor Supply just over a year ago, and it's lost one of the passing grades it picked up then to finish with a respectable (if not stupendous) six out of nine possible passing grades today. One major deficiency here is the company's falling free cash flow, which has diverged from net income growth over the past three years. Because of this drop, Tractor Supply now pays out over half of its free cash flow as regular dividend payments, which earned it one failing grade on this test. The company's stock growth has also surpassed the gains in its earnings per share by a fairly wide margin, which could be worrisome for value investors if the bottom line begins to sputter. Is Tractor Supply's stock growth going to be sustainable, or will the farm and ranch retailer find itself hogtied by fundamental stumbles? Let's dig a little deeper to find out.

Tractor Supply recently topped Wall Street's expectations on both its top and bottom lines for the fiscal fourth quarter, thanks to a highly diversified and largely evergreen product portfolio, which produced a solid 3.5% uptick in same-store sales. However, the company disappointed shareholders with its forward guidance. To counteract this, Tractor Supply announced a multiyear, multibillion-dollar investment plan, which focuses primarily on the expansion of store footprints throughout the United States. Tractor Supply's management plans to launch between 102 and 106 stores this year, and will increase store counts at a rate of about 10% per year for the next several years.

While the company doesn't appear to see a significant rise in sales and administrative expenses accompanying the opening of hundreds of new stores, investors seem to fear a reduction in same-store sales growth as the company stretches itself (perhaps too thinly) across the heartland. Tractor Supply also announced a $2 billion share repurchase program as management seems optimistic about hitting its long-term growth targets.

Fool contributor Mark Lin notes that Tractor Supply's private-label products, which serve a niche customer segment of ranchers, tradesmen, and recreational farmers, have fared very well over the past few years. Consequently, the company now plans to expand its pet food line and its C.E. Schmidt brand of blue-collar workwear. Despite these positive notes, Oppenheimer analysts recently downgraded Tractor Supply from buy to hold, citing a limited upside potential for earnings and a heightened valuation multiple. Tractor Supply's forward P/E ratio of 25.6  is at one of its highest levels in five years, but this 75-year-old brick-and-mortar retailer nonetheless offers a compelling history of market-topping gains. Investors need to decide whether or not near-record valuations can be offset by stronger earnings growth in the near future -- if not, it might be time to move to the sidelines.

Putting the pieces together
Today, Tractor Supply has many of the qualities that make up a great stock, but no stock is truly perfect. Digging deeper can help you uncover the answers you need to make a great buy -- or to stay away from a stock that's going nowhere.

3 stocks to own for the rest of your life
As every savvy investor knows, Warren Buffett didn't make billions by betting on half-baked stocks. He isolated his best few ideas, bet big, and rode them to riches, hardly ever selling. You deserve the same. That's why our CEO, legendary investor Tom Gardner, has permitted us to reveal The Motley Fool's 3 Stocks to Own Forever. These picks are free today! Just click here now to uncover the three companies we love. 

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter, @TMFBiggles, for more news and insights.

The Motley Fool has no position in the companies mentioned here. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers