Yahoo Finance If You Like EPS Growth Then Check Out Tractor Supply (NASDAQ:TSCO) Before It's Too Late
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It's only natural that many investors, especially those who are new to the game, prefer to buy shares in 'sexy' stocks with a good story, even if those businesses lose money. 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.
In the age of tech-stock blue-sky investing, my choice may seem old fashioned; I still prefer profitable companies like Tractor Supply (NASDAQ:TSCO). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. Loss-making companies are always racing against time to reach financial sustainability, but time is often a friend of the profitable company, especially if it is growing.
See our latest analysis for Tractor Supply
Tractor Supply's Earnings Per Share Are Growing.
As one of my mentors once told me, share price follows earnings per share (EPS). It's no surprise, then, that I like to invest in companies with EPS growth. Tractor Supply managed to grow EPS by 12% per year, over three years. That's a pretty good rate, if the company can sustain it.
One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. While we note Tractor Supply's EBIT margins were flat over the last year, revenue grew by a solid 9.2% to US$8.1b. That's progress.
In the chart below, you can see how the company has grown earnings, and revenue, over time. For finer detail, click on the image.
The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. To that end, right now and today, you can check our visualization of consensus analyst forecasts for future Tractor Supply EPS 100% free.
Are Tractor Supply Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a US$13b company like Tractor Supply. But we do take comfort from the fact that they are investors in the company. Given insiders own a small fortune of shares, currently valued at US$76m, they have plenty of motivation to push the business to succeed. That's certainly enough to make me think that management will be very focussed on long term growth.
It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Well, based on the CEO pay, I'd say they are indeed. For companies with market capitalizations over US$8.0b, like Tractor Supply, the median CEO pay is around US$11m.
Tractor Supply offered total compensation worth US$9.3m to its CEO in the year to December 2018. That seems pretty reasonable, especially given its below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. It can also be a sign of a culture of integrity, in a broader sense.
Is Tractor Supply Worth Keeping An Eye On?
One positive for Tractor Supply is that it is growing EPS. That's nice to see. The fact that EPS is growing is a genuine positive for Tractor Supply, but the pretty picture gets better than that. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Tractor Supply. You might benefit from giving it a glance today.
Although Tractor Supply certainly looks good to me, I would like it more if insiders were buying up shares. If you like to see insider buying, too, then this free list of growing companies that insiders are buying, could be exactly what you're looking for.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
