Another enormous rally
Tractor Supply (TSCO) company certainly has some favorable traits in terms of growth potential and execution, but the share price often soars beyond what some believe to be a reasonable valuation. Then, after correcting, it becomes very cheap. This cycle has played out repeatedly for years and today, we are firmly in the former stage of that cycle. The Q2 earnings report has investors positively giddy about this stock again which has raised the price.
Revenue growth continues but margins struggle
Tractor Supply’s recent earnings reports have seen growth pick up markedly and this is the reason for the enormous strength in the stock since the bottom in April. Q2 was no exception as total sales rose 9.7% on new store growth as well as a 5.6% comparable sales increase. The comparable sales gain was driven by a 3.7% traffic gain and a 1.8% average ticket gain, which is a nice mix. Gains were broad-based as all geographic and merchandise categories produced positive comps.
Traffic gains are always preferable to average ticket gains because it means more people are coming into the stores and generating more transactions. This leads to customer loyalty and those buyers coming in as repeat customers. On the flip side, retailers that have ticket gains but traffic losses have a much harder time repeating those gains because the customer base is shrinking; Tractor Supply does not have that problem.
Do you invest in farm industry stock? If so, where and how do you make that decision?