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Should You Think About Buying Canadian Tire Corporation, Limited (TSE:CTC.A) Now?

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·4 min read
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Canadian Tire Corporation, Limited (TSE:CTC.A), might not be a large cap stock, but it saw significant share price movement during recent months on the TSX, rising to highs of CA$194 and falling to the lows of CA$161. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Canadian Tire Corporation's current trading price of CA$164 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Canadian Tire Corporation’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Canadian Tire Corporation

What is Canadian Tire Corporation worth?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 8.44x is currently trading slightly below its industry peers’ ratio of 9.69x, which means if you buy Canadian Tire Corporation today, you’d be paying a reasonable price for it. And if you believe that Canadian Tire Corporation should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Is there another opportunity to buy low in the future? Since Canadian Tire Corporation’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Canadian Tire Corporation look like?

earnings-and-revenue-growth
earnings-and-revenue-growth

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Though in the case of Canadian Tire Corporation, it is expected to deliver a negative earnings growth of -0.08%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? CTC.A seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on CTC.A, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on CTC.A for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. In addition to this, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystallize your views on CTC.A should the price fluctuate below the industry PE ratio.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. In terms of investment risks, we've identified 1 warning sign with Canadian Tire Corporation, and understanding it should be part of your investment process.

If you are no longer interested in Canadian Tire Corporation, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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