Tractor Supply (TSCO -1.19%) just announced its third-quarter results, and while not all investors reacted well to the report, it did point to some bright spots for the rural lifestyle retailer. These include demographic and economic trends that could benefit its business.
But the company is well past its high growth years, so investors will need to take a closer look to determine whether Tractor Supply is a fit for their portfolio at this point.
How earnings fared
For the first nine months of 2022, Tractor Supply reported more than $10 billion in revenue, up 8% compared to the same period in 2021. However, its Q3 revenue of $3.27 billion came in slightly lower than some analysts had anticipated. Moreover, its net income of $818 million for the first three quarters of the year was only 5% higher year over year as the rising cost of goods sold weighed on its bottom line.
Despite those headwinds, management raised its full-year revenue guidance to approximately $14.1 billion. Additionally, it completed its purchase of Orscheln Farm and Home, a former competitor based in the Midwest. The added revenue from that acquisition helped management boost its guidance.
The state of Tractor Supply
Tractor Supply has also benefited from trends that it hadn't previously foreseen. The pandemic led a fair number of urban dwellers to move out of central cities. According to the World Economic Forum, this trend increased the populations in both rural and suburban areas, where nearly all of Tractor Supply's stores are located.
Moreover, higher inflation could, on balance, benefit Tractor Supply. Yes, the rise in its cost of goods sold has reduced its profit margin slightly. But since everyone has to eat, the market will likely respond by increasing food production, and Tractor Supply sells a wide variety of products related to agricultural production.
Furthermore, while September's inflation rate was 8.2%, the specific inflation rate in the food category was 11.2%. That factor could bring more business to its more than 2,000 stores in 49 states, not including the 81 Orscheln Farm and Home stores it just gained.
Tractor Supply and its stock
The increasing interest in rural life has probably added to Tractor Supply's appeal. The stock has held up well amid this bear market -- though it's down slightly over the past 12 months, it has significantly outperformed the S&P 500.
Moreover, its price-to-earnings ratio stands at 21. That's well above indirect competitors such as Home Depot and Lowe's, which both support earnings multiples in the teens. And its $3.68 per share annual dividend yields about 1.9%, only slightly higher than the 1.8% yield of the S&P 500.
Still, management has boosted the dividend every year since it initiated it in 2010. And its most recent dividend hike earlier this year was a 77% bump. That made it a top dividend stock to buy among some investors. That also may have dissuaded some shareholders from unloading Tractor Supply stock as the bear market intensified.
Should I consider investing in Tractor Supply?
Your decision about whether to buy Tractor Supply stock should be heavily influenced by your investment goals. Considering that it already possesses an extensive retail footprint, investors should not open positions here expecting high levels of long-term growth.
Nonetheless, Tractor Supply has held up well among retail stocks amid this bear market. Also, with non-urban populations rising and interest in agriculture increasing, Tractor Supply should benefit. In the end, investors who want to preserve their capital, earn dividend income, and increase their likelihood of beating the indexes should be well-served by Tractor Supply stock.
