Most anything having to do with housebuilding is doing well right now, especially shares of Tractor Supply (TSCO). But the gains TSCO has made this year has taken away the stocks’ upside potential. With a P/E of 25 TSCO is a little higher than it should be.
One Year Chart
First I want to point out TSCO has averaged 16% profit growth the last four quarters. That’s decent growth. But since November the stock’s P/E has expanded from 21 to 25. Some of that is deserved — 2013 profit estimates have increased from $4.35 to $4.45 this year — but I feel some of the move is simply due to the fact money is flowing into the homebuilding industry.
Last quarter TSCO only met earnings estimates. That’s not real impressive. Lookat the stock’s move the last six months, you would thing business would be better. 11% profit growth last quarter isn’t all-that.
Fair Value
TSCO carried a median P/E of between 23 and 26 during the years 2003, 2004, 2005 and 2006. Then the P/E dipped into the teens for four years, and made it back over 20 in 2011 (21) and 2012 (23). I feel the stock’s worth 24 times earnings now, and has gotten ahead of itself a bit.
Sharek’s Take
Tractor Supply is a good growth stock. Analusts expected profit growth will average 17% a year for the next three-to-five years. Company goals are for 14%-16% growth between now (2013) and 2017. That’s good, but a 25 P/E deserves more. Since 2013 and 2014 profit estimates only increased by a penny each after the company reported last quarter earnings, I feel this stock doesn’t deserve to go any higher. It’s too high to buy. $90 seems more reasonable, which is around 20 times earnings.
View the Earnings Table here.View the Ten Year Chart here.
