Tractor Supply Stock Forecast: Investing in retail is a tricky business.
The upside is that consumers can be counted on to purchase necessities, and there is even a reliable demand for some non-necessities.
The downside is that economic fluctuations, changing consumer tastes, and trends in digital marketing and e-commerce make it difficult to determine which retailers will outpace the competition.
A number of major chains permanently closed their doors in recent years. Some of the biggest casualties of the digital era include Sports Authority, Toys R Us, and A&P.
The iconic Sears had to battle for its survival, as are other major department stores like Macy’s [NYSE: M] and JC Penney.
Analysts blame the demise of these major players on competition from online retailers like Amazon, and they note that the biggest common denominator among fallen retail giants is an unwillingness to simplify online ordering and returns, as well as an inability to match low-cost and no-cost shipping offers.
For investors, the big question is which retailers are prepared to survive and thrive as the retail landscape continues to transform? In this Tractor Supply stock forecast, we’ll see where it stands in the pecking order.
What Does Tractor Supply Company Do?
In world where Amazon and Wal-Mart offer rock-bottom prices on just about everything, it is tough to carve out space to be a leader. The magic of Tractor Supply Company is that it has managed to do just that.
Tractor Supply [NASDAQ: TSCO] caters to a very specific market – recreational farmers and ranchers.
Because this population simply isn’t a priority for the top retailers, Tractor Supply is well-positioned to offer the particular products that are critical to this lifestyle.
Roughly 50% of Tractor Supply Company’s annual sales come from supplies needed to care for pets and livestock, and another 25% comes from the sale of hardware, tools, and supplies required for operating a small farm or ranch.
The brand has a solid reputation and a loyal customer base, demonstrated by consistent growth in existing locations.
Overall, Tractor Supply sales have seen a substantial increase, primarily driven by expansion into new markets.
Sales rose from $5.2 billion in 2013 to $7.3 billion in 2017. In a time when many retailers are closing stores, Tractor Supply Company is opening them.
Pros and Cons of Tractor Supply Company
In addition to steady increase in sales, Tractor Supply Company [NASDAQ: TSCO] offers a number of other pros for investors.
The biggest may be the organization’s commitment to keeping pace with e-commerce trends.
Business leaders have made digital sales a priority by investing in the marketing and infrastructure necessary to bring customers in through this channel.
Of course, allocating resources to enhance the e-commerce side of the business has a downside.
The operating margin decreased in 2017 and again in 2018. Nonetheless, between the company’s niche product line and its focus on digital sales, many analysts believe Tractor Supply [NASDAQ: TSCO] is one of the few retailers that is safe from the competitive pressures created by Amazon [NASDAQ: AMZN].
A second downside of investing in Tractor Supply Company [NASDAQ: TSCO] is the dramatic seasonal fluctuations in sales.
Recreational farmers and ranches have the greatest need for these types of products in the spring and summer, and sales drop substantially in the fall and winter.
This is not a problem for investors who plan to hang on to their shares, but it may dissuade short-term investors.
The political climate has a particular impact on Tractor Supply Company. While many industries are or will be affected by changes in tariffs, the population served by Tractor Supply Company is at higher than average risk.
China is an important market for products such as US grown soybeans. If sales decline and farmers are less profitable, Tractor Supply Company will suffer as well.
Fortunately, the immediate threat that alarmed analysts in 2018 appears to be resolved.
While there is no comprehensive resolution to the trade dispute at this time, political leaders are now taking a more careful and thoughtful approach to the negotiations.
Finally, a pattern of slowing growth in customer traffic is starting to appear. So far, this hasn’t caused a lot of concern. However, if the trend doesn’t stabilize or the growth stops altogether, there will be a negative impact to bottom line profits.
Tractor Supply vs. Walmart vs. Target: Which Is Best?
After all, Walmart and Target enjoy a wide customer base, and investors purchasing Tractor Supply Company shares today are paying premium prices.
However, a closer look at the three retailers paints a different picture.
Tractor Supply Company is far more profitable than Walmart and Target, thanks to its comparatively high operating margin.
At the end of August 2018, Walmart came in at just 3.95%, Target had an operating margin of 5.67%, and Tractor Supply Company was at 9.25%.
Investors primarily interested in dividends may prefer an alternative to Tractor Supply Company.
Though this stock pays reliable dividends which have increased steadily in recent years, the total doesn’t match up to the competition.
Tractor Supply Company investors received $0.31 per share in Q4 2018. Walmart paid investors $0.52 per share in Q1 2019, and Target will pay out $0.64 per share in Q3 2019.
Tractor Supply Company: Buy or Sell
Overall, there is a lot to like about investing in Tractor Supply Company stock.
This business appears to have the resilience necessary to survive against pressure from major e-commerce retailers like Amazon, and it has shown a willingness to adjust its business model to meet changing consumer expectations.
Tractor Supply Price Forecast: Though the share price is higher than others in the same general space, this concern is offset by a higher operating margin. If long-term profitability is your primary focus as an investor, Tractor Supply Company has a lot of promise.
The two biggest disadvantages to this investment are the seasonal nature of the business and dividend payments that are lower than its peers.
If you are looking for a short-term investment or dividends are a primary factor in your decision, this may not be the right choice for you.
The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.