Dealmaker’s Diary: This $3 Billion Retailer Has the Goods to Thrive

Alpesh Patel|April 11, 2024

While the Nasdaq is known for its tech giants, there’s a hidden gem in the index that’s been thriving in a completely different sector.

The company’s been around since before World War II… and it’s the largest retailer of its kind in the U.S.

It also has an impressive $3.4 billion in total revenue and pays a dividend.

But what really caught my eye is the company’s consistent growth. In the fourth quarter of 2023 alone, it opened 19 new stores and saw a 2.5% increase in net sales.

For a company of this size, that’s no small feat.

The stock comes in at a 7 on my proprietary Growth-Value-Income rating… and generates a fair amount of cash on the capital it invests.

And if the stock resumes the upward trend it enjoyed in 2021, it could see significant gains from here.

Get all the details on the company – including the ticker – in my latest video.

Click on the image below to check it out.

 

Transcript

Hi, friends. Welcome to Stock of the Week, and, as you can see, it’s Tractor Supply (TSCO). Now, it is a Nasdaq stock and the Nasdaq has been doing rather well.

You might think Nasdaq stocks are any technology companies. Not so.

We have a company here from 1938, even before the second World War. It’s an American retail chain of stores that sells products for home improvement, agriculture, lawn and garden maintenance, livestock, equine and pet care – I think equine is just a posh way of saying horses – for recreational farmers and ranchers, pet owners, and land owners.

The company has 2,000 stores. It’s headquartered in Tennessee, which incidentally is where my sister’s living at the moment.

Tractor Supply is the largest rural lifestyle retailer in the U.S., and it’s in the Fortune 500.

It opened 19 new stores in the fourth quarter of 2023 alone. It tells you something about growth.

Total revenue, $3.4 billion. Not small numbers.

Net sales increased 2.5%. Not massive, but for a company of that size, that is actually quite an achievement and impressive.

Growth is forecast to grow. So growth in profits and growth in sales, and it’s a dividend-paying company.

On my proprietary Growth-Value-Income rating, it ranks a 7 out of 10. That’s where I measure valuation of a company, growth of a company and dividend yields, and we score that by weighing those factors. Anything with a 7 or above meets my minimum criteria.

Forecast P/E is a little bit expensive for a nontech company at a multiple of 24, which is what you’re paying for every dollar of forecasted or expected profits. Having said that… as you know, it’s a growing company. So it’s, let’s just say, well valued.

Cash return on capital invested, that formula from Goldman Sachs Wealth Management, which there’s an explanation around this video on why it’s important, is 8.4%, not the highest, but it’s a pretty good solid number.

Sortino, the average return versus the downside risk of missing it, is 0.4. I’ll take that anytime.

Not very volatile, and in this market might be a good thing to have a stock which isn’t particularly volatile, so ticking a hell of a lot of boxes for us.

When I look at the chart, I’ve done almost a pessimistic projection for the company, which only sees about a 20% rise over the next 12 months. I expect it will, in its growth spurt, probably do what it did, continue to do what it did, in 2021. And you can see that angle of inclination, which would be more an extension of what started from 2023, and at that rate you’d have a far more significant return than just a mere 20% in 12 months.

On a discount cash flow, however, the company is barely undervalued, so not everything gets ticked.

Now, in GVI Investor, that my criteria are fairly stringent for that, and I’d want the CROCI to be right up there in the top quartile.

I’d want undervaluation to be greater. But this is a good Stock of the Week to have caught my eye.

Thank you very much.