Tractor Supply has had an impressive run over the past six months as its shares have beaten the S&P 500 by 6.1%. The stock now trades at $60.20, marking a 10.6% gain. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.

Following the strength, is TSCO a buy right now? Or is the market overestimating its value? Find out in our full research report, it’s free.

Why Does Tractor Supply Spark Debate?

Started as a mail-order tractor parts business, Tractor Supply (NASDAQ: TSCO) is a retailer of general goods such as agricultural supplies, hardware, and pet food for the rural consumer.

Two Positive Attributes:

1. Store Growth Signals an Offensive Strategy

The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.

Tractor Supply sported 2,542 locations in the latest quarter. Over the last two years, it has opened new stores at a rapid clip by averaging 4.1% annual growth, among the fastest in the consumer retail sector.

When a retailer opens new stores, it usually means it’s investing for growth because demand is greater than supply, especially in areas where consumers may not have a store within reasonable driving distance.

2. Stellar ROIC Showcases Lucrative Growth Opportunities

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Tractor Supply’s five-year average ROIC was 33.5%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

One Reason to be Careful:

Flat Same-Store Sales Indicate Weak Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Tractor Supply’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.

Final Judgment

Tractor Supply’s positive characteristics outweigh the negatives, and with its shares beating the market recently, the stock trades at 27.2× forward P/E (or $60.20 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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