Ever since the pandemic hit, stocks from every sector have been on a roller coaster ride, as the rapidly changing economic environment has provided both headwinds hurting their share prices and tailwinds, helping them to recover. And now, after many have been expecting a recession to materialize for a year, Canadian Tire (TSX:CTC.A) stock is one of the best opportunities on the market.
Surging inflation sent the cost of living soaring in 2022, and higher interest rates, which were raised to help cool inflation, have also made spending more expensive for consumers.
So, it makes sense why so many investors have been expecting a recession for months. Although one has yet to officially hit, many stocks, especially in the retail space, are starting to see impacts on their business, including Canadian Tire, a top retailer and one of the best-known brands in Canada.
Therefore, considering that Canadian Tire is such an impressive business and that these impacts on its business should be temporary, while the stock price is being impacted, it’s creating an excellent buying opportunity for long-term investors looking to buy today.
So, let’s look at how badly Canadian Tire is being impacted, when it can bounce back, and just how much value it offers investors today.
How bad are the impacts on the Canadian retailer’s business?
Although Canadian Tire stock is trading more than 25% off its all-time high, the impacts on its business, while noticeable, are not that significant.
In fact, for the full year of 2023, analysts estimate that Canadian Tires revenue will decline by just 2.7%. Furthermore, its earnings per share (EPS) is expected to fall by roughly 25%.
That may sound like a significant drop-off, but it’s worth noting that analysts expect Canadian Tire stock to begin to rebound next year, with estimates for normalized EPS 16.7% higher for 2024 than they are for 2023.
It’s also worth noting that while a drop off in earnings is never ideal, Canadian Tire is still widely expected to remain profitable, as it faces these significant headwinds, reminding investors what a high-quality company it is and how impressive its economics are.
Therefore, while the stock is trading at such a significant discount, it looks like one of the best stocks you can buy today.
Is Canadian Tire one of the best value stocks to buy now?
For 2023, analysts are estimating that Canadian Tire stock will earn normalized EPS of $14.03 — a roughly 25% decline from 2022, when it earned 18.75 in normalized EPS.
Therefore, Canadian Tire is trading at a forward price-to-earnings (P/E) ratio of roughly 10.3 times, which is considerably cheap and below Canadian Tire’s five- and 10-year averages of 10.9 and 12.8 times, respectively.
Furthermore, when you consider that Canadian Tire is expected to recover over the next couple of years and continue on its long-term growth trajectory, it soon becomes clear just how cheap Canadian Tire is.
At roughly $155 per share today, Canadian Tire trades at roughly 9.4 times its expected earnings next year and just 7.7 times its expected earnings in 2025 when it’s fully recovered.
Of course, nobody knows how long the economy could be impacted, and there are certainly risks the stock faces that could prolong its recovery.
But with the impressive retail stock trading ultra-cheap at the same time that it’s being temporarily impacted by the economy, it’s creating a significant opportunity for long-term value investors to buy the stock today.