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What's Driving Tractor Supply 13% Lower Monday?

By Daniel Miller - Mar 9, 2020 at 12:37PM

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Here's what Tractor Supply investors should consider as markets plunge.

What happened

Shares of Tractor Supply Company (TSCO -0.24%), a large rural lifestyle retailer in the U.S. with over 2,000 stores in 49 states, are down nearly 13% Monday morning as the broader markets plunged roughly 7% and triggered a 15-minute circuit breaker.

So what

Before we get into more direct implications for Tractor Supply, it's worth noting what's going on in the broader markets. COVID-19 concerns continue to rise as the number of cases now tops 100,000 globally. Italy has become one of the worst hit countries, as its government decided to quarantine its Northern region. Investors and consumers are clearly more concerned that COVID-19 could cause a global economic slowdown or recession.

People looking at a lawn mower in a retail store

Image source: Getty Images.

Aside from broader fears and losses bringing shares of Tractor Supply lower, investors have reason to be concerned about possible supply chain disruptions. In fact, here's what the company had to say in its most recent 10-K: "Our future success will depend in large measure upon our ability to maintain our existing supplier relationships or to develop new ones. This reliance exposes us to the risk of inadequate and untimely supplies of various products due to political, economic, social, health (including, but not limited to, the recent COVID-19 coronavirus outbreak originating in China), or environmental conditions, transportation delays, or changes in laws and regulations affecting distribution."

Now what

There are certainly potential disruptions to Tractor Supply's distribution if its suppliers are forced to postpone or shut down operations, file bankruptcy, or even just reduce production due to COVID-19. Those fears, in addition to a possible slowing of foot traffic as people avoid gatherings and other busy areas, are enough to hinder retailers and other consumer discretionary stocks in the near term. But investors would be wise to avoid panic selling, and simply ask whether their long-term investing thesis for a company has changed.

Tractor Supply has more than 2,000 locations, and analysts at Morningstar.com believe the company can expand that figure to almost 2,900 over the next decade. Tractor Supply has plenty of growth that shouldn't be hindered by COVID-19 in the long term, and as it builds its scale and leverage with vendors and suppliers, it could boost its bottom line right along with its top line. Tractor Supply's roughly 18% drop over the past month has been a little painful, but it can be taken with a grain of salt if you keep a long-term investing horizon.

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TSCO
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