Its returns have trounced the wider market since early 2020, but there could be more room for growth ahead for Tractor Supply (TSCO 3.26%) stock. The rural lifestyle retailer is winning market share in an expanding industry niche. It hasn't suffered the same type of growth hangover that hit rival retailers, either.
With those positive trends in mind, let's take a closer look at why Tractor Supply still looks attractive today even following its multiyear rally.
Winning through the pandemic
Tractor Supply was a huge beneficiary of pandemic-related demand swings as consumers shifted their spending toward rural living supplies. And the even better news is that sales trends aren't contracting today following that surge.
On the contrary, comparable-store sales were up 2% in the most recent quarter and overall revenue rose 9% to $3.3 billion. That Q1 sales figure sat at just $2 billion back in early 2022.
It's true that demand trends were soft to kick off fiscal 2023. "[C]omparable store sales were below our expectations," CEO Hal Lawton told investors in late April. That slowdown was mainly due to unseasonable weather, though, and Tractor Supply affirmed its main growth targets for the year.
Farming for profitability
Tractor Supply is also an unusually profitable business. Consider that gross profit margin expanded this past quarter at a time when many rivals are seeing weaker results here. The company notched a 36% Q1 margin, up from 35% a year ago, partly thanks to increased prices and lower transportation costs.
Operating profit is on track to land above a blistering 10% of sales again in fiscal 2023, too. For context, Target was only able to achieve an 8% operating margin briefly during the highest-growth days of the pandemic and is now calling for closer to 6%.
TSCO Operating Margin (TTM) data by YCharts
Shareholders might see this metric expand modestly over the coming years as well. Tractor Supply is gaining market share and selling a wider selection of higher-priced products like consumables. And its steadily rising customer traffic implies strong shopper loyalty in a competitive industry.
The price is right for Tractor Supply stock
Investors aren't being asked to pay a huge premium for all of those positive prospects, either. Tractor Supply today is valued at about 1.7 times annual sales, which is roughly in the middle of the range that shareholders have seen over the past five years. For context, Target and Walmart, which have weaker sales growth and profit margins, are both priced at about 0.6 times sales.
It's always possible that Tractor Supply stock will get cheaper, especially if the early 2023 demand slowdown that the company revealed in late April extends deeper into the year. Look for a key update on this score around July 21.
But the stock still looks like an attractive buy right now for investors seeking exposure to this retailing niche. Tractor Supply greatly expanded its industry clout over the last few years, and those successes point to further impressive returns ahead for this growth stock.
