If You Like EPS Growth Then Check Out Tractor Supply (NASDAQ:TSCO) Before It's Too Late

By
Simply Wall St
Published
February 25, 2021
NasdaqGS:TSCO

For beginners, it can seem like a good idea (and an exciting prospect) to buy a company that tells a good story to investors, even if it completely lacks a track record of revenue and profit. And in their study titled Who Falls Prey to the Wolf of Wall Street?' Leuz et. al. found that it is 'quite common' for investors to lose money by buying into 'pump and dump' schemes.

So if you're like me, you might be more interested in profitable, growing companies, like Tractor Supply (NASDAQ:TSCO). Now, I'm not saying that the stock is necessarily undervalued today; but I can't shake an appreciation for the profitability of the business itself. Conversely, a loss-making company is yet to prove itself with profit, and eventually the sweet milk of external capital may run sour.

View our latest analysis for Tractor Supply

How Quickly Is Tractor Supply Increasing Earnings Per Share?

If a company can keep growing earnings per share (EPS) long enough, its share price will eventually follow. It's no surprise, then, that I like to invest in companies with EPS growth. As a tree reaches steadily for the sky, Tractor Supply's EPS has grown 25% each year, compound, over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

I like to take a look at earnings before interest and (EBIT) tax margins, as well as revenue growth, to get another take on the quality of the company's growth. The good news is that Tractor Supply is growing revenues, and EBIT margins improved by 2.3 percentage points to 11%, over the last year. Ticking those two boxes is a good sign of growth, in my book.

In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.

earnings-and-revenue-history
NasdaqGS:TSCO Earnings and Revenue History February 25th 2021

Fortunately, we've got access to analyst forecasts of Tractor Supply's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Tractor Supply Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$19b company like Tractor Supply. But we do take comfort from the fact that they are investors in the company. With a whopping US$84m worth of shares as a group, insiders have plenty riding on the company's success. This should keep them focused on creating long term value for shareholders.

Should You Add Tractor Supply To Your Watchlist?

You can't deny that Tractor Supply has grown its earnings per share at a very impressive rate. That's attractive. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. So this is very likely the kind of business that I like to spend time researching, with a view to discerning its true value. What about risks? Every company has them, and we've spotted 1 warning sign for Tractor Supply you should know about.

You can invest in any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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