How to Play Tractor Supply Stock After 18% Drop in 6 Months?

Core Viewpoint - Tractor Supply Company (TSCO) has experienced a 17.8% decline in share price over the past six months, underperforming both the industry and broader market indices, reflecting challenging macroeconomic conditions and company-specific challenges [1]. Group 1: Stock Performance - TSCO closed at $51.32, remaining below its 200-day and 50-day simple moving averages (SMAs) of$54.52 and $54.17, respectively, indicating a potential sustained downward trend [4]. - Investors are divided on the future trajectory of TSCO, with some anticipating further downside while others see potential for a rebound [7]. Group 2: Growth Challenges - The company reported a modest 0.6% increase in comparable store sales in Q4 2024, driven by a 2.3% rise in transaction count, but offset by a 1.7% decline in average ticket size, indicating reduced consumer spending per visit [8]. - TSCO is facing mounting cost pressures, with SG&A expenses, including depreciation and amortization, increasing by 5.5% year over year, leading to a 4.8% decline in operating income and a 69-basis point drop in operating margin to 8.44% [9][10]. - SG&A costs are expected to rise another 6.7% in 2025, with SG&A as a percentage of sales forecasted to increase by 30 basis points, compounded by a tough retail environment and anticipated deflationary pressures [11]. Group 3: Growth Initiatives - TSCO is leveraging strong customer engagement and market share gains through its "Life Out Here" lifestyle assortment and convenience store format, which enhances customer loyalty [12]. - The Neighbor's Club loyalty program is a key growth driver, achieving record highs in active accounts and customer retention, while cross-shopping between Petsense and Tractor Supply is increasing [13]. Group 4: Valuation Concerns - TSCO's stock is trading at a forward 12-month P/E ratio of 22.95X, significantly higher than the industry average of 14.84X, raising concerns about the sustainability of this premium valuation amid slowing growth and rising costs [14]. - The elevated valuation may limit upside potential in the near term, especially if performance does not improve significantly [15]. Group 5: Market Outlook - The recent stock decline and ongoing challenges from shifting consumer behavior and macroeconomic pressures suggest a cautious approach for investors, as TSCO's near-term outlook remains uncertain [16].