lundi 1 mai 2017

Tractor Supply (TSCO)

You know how Giverny Capital select their stocks?

I believe that they go on Value Line, and they check the stocks with the highest earnings predictability stocks. And they check stocks with growing cash flows. Checking those elements, you could find many of Giverny stocks like  Heico, LKQ, Union Pacific, and many more. In fact, Giverny seems to search for stocks that are predictable and steady. And they don't care if the stock is selling for 20-25 times earnings. In fact, they seem to be more willing to pay 25 times earnings than 15 times earnings. 

Screening Value Line with that predictability criteria, I discovered a stock with all these characteristics:

Actual ROE: 31
Average ROE last 5 years: 29
Annual EPS growth last 5 years: 17%
Forward PE: 16
Average PE last 5 years: 29
Debt: Low (less than 3 times earnings)
Buyback/Dilution: 6% buyback over the last 3 years (which is a lot)
Earnings predictability (Value Line): 95% (which is exceptionnal)
Payout ratio: 30%
Dividend: 1,5%

Everything has been growing over the last 10 years: margins, book value, sales, earnings...

That's a fucking amazing performance. And that's the performance of Tractor Supply (TSCO), a specialty retailer supplying the lifestyle needs of recreational farmers and ranchers, as long as tradesmen and small businesses. The company provides livestock and pet products (46% of 2016 sales), hardware, tools, truck and towing, seasonal products (snow blowers and mowers), gifts and toys, clothing, footwear and other stuff...

There's only two negative points with TSCO: growth has slowed down and I don't know if that's gonna change. Then, the cash flows of the business are pretty uneven, year after year. 

Is Amazon a threat for Tractor Supply? Probably for some products, but not all. Well, 46% of TSCO sales are pet products and probably that Amazon could be a threat there. For the biggest stuff like truck and towing, probably that Amazon is not that much of a threat for the moment, but who knows... Amazon may very well sell cars and yacht and boeing and cruise ships. That fucking business seems to sell everything and kill every retail store still alive.

So, I don't know if TSCO is still a great buy. But it's been a great stock until pretty recently.

6 commentaires:

  1. Just a heads up: Savaria / SIS on the toronto stock exchange just acquired Span America Medical Systems. This is a deal that will increase revenue by 70% and adjusted ebitda by 47%

    If you do not know who Savaria is, get a copy of their annual report. They were growing like crazy even without this acquisition and the balance sheet is solid even after this acquisition. I already had a position and I added to it on Tuesday morning.

    details here:

  2. I've been a shareholder of SIS for a couple of weeks in 2016. I've never been comfortable with the valuation. Plus, there's a constant dilution going on.

    It's a good stock, but too expensive for me.

  3. "On a regional basis, sales were most challenged in the Northern regions, where weather had a more pronounced impact on sales for the quarter," the company said."Weather can influence the demand for certain products," Tractor Supply CEO Greg Sandfort said in a statement.
    This greater reliance on weather caught offguard some analysts. This might be the start of some bull from management that can be classified into Penetrator previous post. I suggest that you join Giverny Advisors comitee....

    I like the fact that you raise some concerns regarding the dilution with SIS, which is not the perfect way to grow earnings. Big deal followed by financing. Their cash flow has been erratic. There is certainly some tailwind with the aging population and they have a growing OM.

  4. RE: FRESHII (FRII on toronto exchange)

    A little while ago somebody posted in the comments and was VERY excited about the future prospects of a healthy casual brand of restaurant called Freshii. I remember taking a quick look at their website. I'm not exactly a salad guy. I was not impressed. Today their latest earnings came out. There's not much in earnings but same store sales were up over 6% and they intend to grow like crazy in the year ahead. They have about 300 stores. They want to get to 430 or 440 by the end of fiscal 2017. They are starting to get my attention because this restaurant concept is mostly cold storage (no deep fryers or more expensive cooking equipment). This means less capital is necessary to start this type of restaurant and their return on assets and roe may be better. I mean, profit margins must be good when you sell lettuce and other fruits and veggies as a meal. LOL
    Do any of you have experience eating at this new restaurant? Did they impress you or is their food only for rabbits and weirdos? This company is very new on the stock exchange. If they do succeed, this is the ground floor.

  5. 5i recommends waiting until the end of August which is the end of the lock up period for insiders.