Canadian Tire (TSX:CTC.A) is an iconic Canadian company that’s finally starting to get the respect that it so rightfully deserves. The retailer defied the shorts and the bearish pundits through the worst of the COVID-19 pandemic. As a result, shares of Canadian Tire are now flirting with new all-time highs not seen in years. As the company looks to build upon its e-commerce strength in the post-pandemic era, I think shares have much more room to run on the back of a potential discretionary spending boom.
The perfect reopening play
Mr. Market pulled the rug from underneath Canadian Tire shareholders back in February and March of 2020. Shares were already under pressure going into 2020, and the coronavirus market crash just served as salt in the iconic Canadian retailer’s wounds. In a matter of weeks, Canadian Tire stock crumbled like a paper bag, nosediving an unprecedented 45%.
Things were ugly for retail investors in the heat of the moment. It was excruciating. There’s no doubt about that. But if you listened to the fundamentals, you probably found it made a tonne of sense to stand by the retailer in spite of what the markets were telling you in its moment of panic-induced inefficiency.
A rock-solid balance sheet
Canadian Tire had a pristine balance sheet. As such, there was a minimal risk that the retailer would roll over at the hands of COVID-19 lockdowns. The company was just too liquid to sink during the worst of the COVID-19 crisis — a major reason why I praised CT REIT, a REIT that houses Canadian Tire locations, as a robust income play to buy in the heat of the coronavirus crisis.
To this day, Canadian Tire’s balance sheet continues to be impeccable. The firm has more than enough liquidity to take advantage of acquisition opportunities while still being able to fend off another several waves worth of lockdowns. With federal regulators taking action to avoid a mutated variant outbreak, the risks of further lockdowns, while unlikely, shouldn’t be ruled out completely by investors.
CTC.A stock is a great reopening trade that won’t fold should this pandemic take a turn for the worst before it’s finally eliminated. At the time of writing, Canadian Tire boasts a 1.41 quick ratio and a 1.91 current ratio, making it one of the most liquid retailers out there.
The next omnichannel king?
Not only did Canadian Tire have a rock-solid balance sheet, but the firm also spent a considerable amount on beefing up its e-commerce platform. The company experienced an unprecedented surged in online sales amid the worst of the pandemic.
As COVID-19 dies down and people head back to the shopping malls, I suspect Canadian Tire will rise out in a position of profound strength. The company will likely find itself firing on all cylinders, both on and offline. That makes the discretionary retailer one of the most attractive ways to play a post-pandemic discretionary spending boom.
Canadian Tire stock is still too cheap at 0.7x sales, given its progress and the probable spending boom that lies ahead.