Compounder Fund: Tractor Supply Sell Thesis - 13 Jul 2026
Data as of 12 July 2026
We first invested in Tractor Supply (NASDAQ: TSCO) for Compounder Fund’s portfolio in July 2020. Our investment thesis for the company can be found here. In late-March 2026, we completely exited Tractor Supply. This article describes our Sell thesis for the company.
When we invested in Tractor Supply, the retailer specialised in products catering to recreational farmers, ranchers, and people who enjoy the rural lifestyle (it still does today). It had a long history of largely positive comparable store sales growth, steady growth in store count, revenue, net profit, and free cash flow, and gradual reduction in its share count. In particular, the company’s revenue and diluted earnings per share from fiscal 2014 (the fiscal year ended late-December 2014) to fiscal 2019 was up 7.7% and 11.9% per year, respectively. The company also appeared to have ample room for growth, given management’s long-term target back then of having 2,500 Tractor Supply stores and 1,000 Petsense stores when the store counts were 1,881 and just 180, respectively.
For the most part after our investment, Tractor Supply continued to expand its presence, deliver positive comparable store sales growth, grow its revenue, net profit, and free cash flow, and lower its share count, as shown in Table 1. From fiscal 2020 to fiscal 2025, Tractor Supply’s revenue and diluted earnings per share compounded annually at 7.9% and 10.0%, respectively. These are similar to what the company delivered for the fiscal 2014 to fiscal 2019 period. But a slight contraction in the company’s trailing price-to-earnings (P/E) ratio from 25 at the time of our initial investment at an average split-adjusted price of US$29 to 22 at the time of our sale at an average price of US$45 meant that the stock price return from Tractor Supply was a little short of the double-digit annualised gain we had targeted.
Table 1; Source: Tractor Supply annual reports
At the time of our sale, we recognised that there were a number of credible growth levers that management was working on:
- Tractor Supply ended fiscal 2025 with nearly 60% of its stores in the Project Fusion format, which features an improved store layout and product-assortment, and upgraded digital tools. Management’s target was to upgrade all of the company’s stores to the Project Fusion format by fiscal 2029.
- The Final Mile Delivery initiative, which lowers Tractor Supply’s cost to serve online orders and enables fulfilment of larger and more complex orders, was expanded to more than 210 delivery centers in fiscal 2025, covering nearly a quarter of the company’s store base. Management was looking to expand Final Mile Delivery to another 150 delivery centers in fiscal 2026, to enlarge coverage to more than half of Tractor Supply’s stores.
- Management sees a total opportunity of 3,200 Tractor Supply stores over the long-term, and was projecting 100 new Tractor Supply store openings in fiscal 2026 to add to the existing 2,395 stores at the end of fiscal 2025.
But management’s guidance for fiscal 2026 was tepid. Comparable store sales growth was expected to be just 1%-3%, while growth in revenue and diluted earnings per share were expected to be merely 4%-6% and 3%-8%, respectively. These are also meaningfully inferior to the following long-term targets that management shared in Tractor Supply’s December 2024 Investment Community Day event:
- Annualised revenue growth of 6%-8%
- Comparable store sale growth of 3%-5%
- Annualised diluted earnings per share growth of 8%-11%
During Tractor Supply’s fiscal 2025 fourth-quarter earnings conference call, management shared that they “continue to believe the company is capable of delivering 3% to 5% comparable store sales growth over time.” But we still decided to part ways with Tractor Supply for the following reasons:
- If Tractor Supply’s growth rates for the next few years are in a similar range to what management had projected for fiscal 2026, the company’s shares will mathematically not be able to produce a double-digit annualised return for shareholders, unless the highly unlikely scenario of an expansion in the P/E ratio to the vicinity of 30 happens.
- We wanted to raise capital for adding to Compounder Fund’s existing position in Meta Platforms, and we saw Meta Platforms’ future return as being more certain and materially higher than what Tractor Supply could deliver.
And here’s an important disclaimer: None of the information or analysis presented is intended to form the basis for any offer or recommendation; they are merely our thoughts that we want to share. Of all other companies mentioned in this article, Compounder Fund owns shares in Meta Platforms. Holdings are subject to change at any time.
