Some of you city slickers reading the financial pages may not be familiar with Tractor Supply
Following a big 2003, Tractor Supply is beefing up again. So far this year, sales are up 21% over the prior-year period to $330 million, and that growth wasn't just achieved through new locations. A robust comps boost of more than 12% contributed to a healthy bottom line, with earnings reaching $0.09 per share. That figure nearly doubles the $0.05 per share earned last year, adjusted for a onetime accounting charge.
Gross margins also improved to 30%, and selling, general, and administrative expenses were reduced as a percentage of sales. Clearly, this company is chugging on all cylinders and hitting its target market -- despite alleged competition from the likes of Wal-Mart
Longtime Fool columnist Whitney Tilson mentioned the firm three years back, when it was trading at just over six times earnings. By the time Dave Marino-Nachison checked in at the end of the last fiscal year, he noted that it was priced at 24 times forward estimates.
Since then, the valuation has changed little. With shares priced above $40 and management guidance for 2004 net income around $69 million, it still costs about 24 times next year's projections. That might have seemed reasonable right on the heels of last year's 50% earnings growth, but it looks too expensive now, considering the low 20% growth rate baked into forward estimates.
Tom Gardner hunts down undervalued companies like there's no tomorrow in Motley Fool Hidden Gems . Check it out by taking a free, 30-day trial.