Any investor who watched the speech of the presidential inauguration and holds U.S.-based securities would be happy with the message: “You’re going to be taken care of.” Although there could be significantly deeper ramifications for Canadian investors, the events led me to look at what could be considered our national chain.
Similar to Wal-Mart Stores Inc. (NYSE:WMT), the most dominant retailers in the United States, Canadian Tire Corporation Limited (TSX:CTC.A) is Canada’s retail chain which offers customers the ability to buy new tires and household items under the same roof.
Taking revenues into account, we can see a clear trend for both companies.
From 2012 until 2014, revenues increased, while both companies had a decrease in 2015. Through the first three quarters to date, Canadian Tire had revenues of $9.04 billion compared to $8.9 billion for the same three quarters in the previous year — an increase of approximately 1.6%. Wal-Mart had revenues of $354.9 billion compared to $352.5 billion for the same three quarters in the previous year — an increase of approximately 0.06%.
Advantage: Canadian Tire.
Revenues, however, don’t tell the full story. Management has the opportunity to do an awful lot to increase profitability.
In the case of Wal-Mart, the earnings per share (EPS) have trended downwards year over year. Through the first three quarters of the current fiscal year, EPS are flat.
Canadian Tire is another story. Since 2012, EPS have increased consistently year over year from $6.10 in 2012 to $8.61 in 2015. For the first three quarters to date, earnings are up over the previous year. It seems the smaller, nimbler Canadian retailer has been able to weather the storm much better than the U.S. retailer.
Investors interested in making money by purchasing shares of a company should not simply jump on to the best trampoline. Investors could really get hurt when buying shares at any price. The price an investor pays for a share is not the dollar price; instead, it is the multiple on earnings. In the case of Wal-Mart, the price to earnings ratio (P/E) is slightly under 15 times, while the ratio is a tad over 16 times for Canadian Tire.
Although the U.S. retailer may seem like a less expensive stock, this may not be the case. With declining earnings, new investors may be getting much less bang for their buck, while those north of the border are being offered a better deal.
Currently, income-seeking investors are better off buying the American retailer to obtain a 3% dividend yield; the Canadian retailer only offers approximately 1.75%. Looking forward, however, the potential for future dividend increases are much more prevalent for Canadian Tire.
