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Tractor Supply advertises itself as a “country lifestyle retailer.” The Tennessee-based company has become a darling of the stock market during the pandemic as more Americans leave cities and take up hobby farming. Post-COVID-19, the homesteading lifestyle is here to stay, even if other pandemic trends like Peloton have lost their appeal. It turns out that Millennials love growing their own chickens, vegetables, and fruit.
All of this has been a boon for tractor supply. The company, which sells everything from chicken coops to cow gates to tractor parts, generated a record $14.5 billion in revenue last year across its 2,216 stores. This compares to $8.3 billion in 2019, representing a compound annual growth rate of 15% over this period.
Wall Street has noticed. Tractor Supply’s stock price has nearly tripled since March 2020, giving the company a market valuation of more than $30 billion. That’s despite controversy surrounding the company’s decision to end its diversity, equity, and inclusion (DEI) efforts and climate change goals following pressure from conservative activists.
It’s one thing to rise to the top of the retail industry hierarchy. It’s hard to stay there. Tractor Supply’s sales are expected to grow only 2.4% this year. This is due to the harsh comparison. And considering that major retailers like Target and Lowe’s are expected to see flat or declining sales this year, the numbers don’t seem all that dire.
Still, Tractor Supply stock trades at a forward P/E of nearly 27x, compared to an average of about 22x over the past three years, and it will be difficult to continue moving higher from here in the short term.
For investors with a long-term perspective, tractor supply remains a good option. Unlike large commercial farms, which have been hurt by falling crop prices, the company’s core customers, hobby farmers, small ranchers, and suburban and rural homeowners, are less affected by the ups and downs of the produce supercycle. Almost never received it.
The company’s specialized focus on providing small farmers with everything they need to raise chickens and heirloom tomatoes gives the company a formidable financial moat. You can’t buy 40 pound bales of shredded hay or live chicks or ducklings on Amazon or Temu. There are other benefits to focusing on selling your own private labels. The company’s EBITDA margin is about 13%, more than twice that of Walmart.
There is room for further improvement. Tractor Supply needs to leverage more of its one-stop-shop business model and expand more aggressively into adjacent product categories such as gardening and plants. They can and should take market share from the likes of Home Depot and Lowe’s.
pan.yuk@ft.com
