Today we're going to take a look at the well-established Tractor Supply Company (NASDAQ:TSCO). The company's stock saw a double-digit share price rise of over 10% in the past couple of months on the NASDAQGS. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Today I will analyse the most recent data on Tractor Supply’s outlook and valuation to see if the opportunity still exists.
What's the opportunity in Tractor Supply?
According to my valuation model, Tractor Supply seems to be fairly priced at around 2.32% above my intrinsic value, which means if you buy Tractor Supply today, you’d be paying a relatively fair price for it. And if you believe the company’s true value is $221.97, there’s only an insignificant downside when the price falls to its real value. What's more, Tractor Supply’s share price may be more stable over time (relative to the market), as indicated by its low beta.
Can we expect growth from Tractor Supply?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 23% over the next couple of years, the future seems bright for Tractor Supply. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
What this means for you:
Are you a shareholder? TSCO’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on TSCO, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
So while earnings quality is important, it's equally important to consider the risks facing Tractor Supply at this point in time. For example, we've found that Tractor Supply has 2 warning signs (1 doesn't sit too well with us!) that deserve your attention before going any further with your analysis.
If you are no longer interested in Tractor Supply, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.