With the onset of spring, a young investor's fancy lightly turns to thoughts of ... profits.
And in this case, Real Money Columnist Paul Price says he found them rooting around in the garden.
What makes this a doubly attractive idea to Price is that the company's share price has a habit of rising substantially, getting cut back and then rising again.
“Getting second and third chances to buy stocks you know well and love, at incredibly good valuations, is how fortunes are made,” Price wrote recently on Real Money.
In this case, he’s looking at Tractor Supply (TSCO), a retailer that specializes in commercial agricultural equipment and home gardening supplies. Ideally, this is a one-stop shop for all of your farming needs, whether you work acres of corn for a living or simply aspire to not kill that petunia.
The company has a business model that impresses Price, which is why he invests so heavily that it is sometimes his single largest dollar holding.
It is, he writes, “a fine ‘left-to-right’ growth company. Those are defined as firms which typically show impressive long-term growth across all major business metrics.”
Price has been investing in Tractor Supply on and off since 2007.
When Price last began building a holding in 2017, "the shares had climbed 340%, plus dividends, from May 22, 2007 - May 22, 2017. That was good, but only partially reflected greater than 400% growth in both cash flow and earnings per share over that span."
What caught his eye was that "the stock had plunged 41.3%, from an April 2016 peak of $97.30 to $57.07 simply because year-over-year EPS growth had slowed up a bit. I started buying near $57 and continued to average down as the shares made an eventual final bottom just south of $50 in July 2017."
As to what attracted Price so much. "Its typical price-to-earnings ratio is about 22.2 times, accompanied by around 1.23% in current yield. At its low of $49.90, the shares were available for just 15 times earnings while paying a well above normal 2.1%."
The course of true love (and true profits) never did run smooth however, and after risiing to fresh highs in January 2018, Tractor Supply returned most of its gains over the next two months.
"After the shock of seeing it not far from where I'd first gotten involved, I realized I was getting a second chance to bump up my holdings," Price wrote.
Flash forward to 2019 and all proved well. "From $58.30 the shares took off. By late summer 2019, they had almost doubled, to $110.40. This time I did not miss my chance to cash in for very significant locked-in gains."
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