Should Investors Buy the Dip in Canadian Tire Stock?

Should you buy Canadian Tire now, with the stock down 30% off its 52-week high and trading at just 8.9 times its expected earnings in 2025?

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Several high-quality Canadian stocks continue to struggle in this economic environment, especially in the retail sector. For example, Canadian Tire (TSX:CTC.A) stock has only continued to sell off in recent weeks.

The stock is now down more than 30% from its 52-week high and trading right at the bottom of its 52-week range. That’s a significant discount for a massive, well-known business like Canadian Tire.

The high-potential stock that owns some of Canada’s best-known retail banners, such as Sport Chek, Mark’s, Party City, and Canadian Tire retail, has faced significant headwinds recently.

Higher interest rates and the impacts of higher inflation are still affecting consumers and causing Canadian Tire’s sales growth to stall. Plus, the stock is also facing impacts from an unseasonably warm winter in Canada, particularly in the Greater Toronto Area (GTA).

With the weather warmer than normal and only one major snowfall in the GTA this winter, Canadian Tire saw massive impacts. For example, this year, consumers didn’t need to buy as many shovels, snowblowers, or salt.

In recent quarters, this has made the operating environment extremely tough for Canadian Tire. For example, in the fourth quarter of 2023, sales were down a whopping 16.3% from the same quarter in 2022. Meanwhile, for all of 2023, Canadian Tire’s sales were down just 6.5% compared to 2022. So, it’s clear how badly the stock was impacted in the fourth quarter compared to the rest of the year.

These results show the massive challenges that Canadian Tire has been facing lately. However, the good news for investors is that this challenging environment is not expected to last. Furthermore, Canadian Tire is now trading at a significant discount.

So, while it’s trading off its highs, should you buy the dip in Canadian Tire stock?

Should you buy Canadian Tire stock today?

The impacts on Canadian Tire’s business certainly look concerning on the surface. A more than 16% drop in sales in just a single quarter is certainly noteworthy. However, given that these impacts were predominantly caused by unseasonable weather, they’re not as concerning as they might seem.

A stock like Canadian Tire will always face the short-term risk of unseasonable weather impacting sales. However, as the seasons change, these headwinds unsurprisingly never last long.

The macroeconomic headwinds are much more worrisome, as they could potentially linger for several more quarters until we start to see significant decreases in interest rates.

That said, though, Canadian Tire has generally weathered the storm well up until this point, and many expect interest rates to begin declining by the end of the year. Therefore, while this high-quality stock trades so cheaply, it’s certainly one of the best stocks to buy.

Neither the macroeconomic headwinds nor the unseasonal weather conditions should have any long-term impacts on Canadian Tire; therefore, it’s the ideal stock to buy at such a significant discount.

Plus, when the economic environment improves, the retailer has a tonne of upside. Not only is it cheap and pays an attractive dividend, but Canadian Tire also has plenty of long-term growth potential.

It has one of the most popular loyalty programs in the country, which it can use to offer discounts to consumers and increase foot traffic in its stores. Not to mention, Canadian Tire has done a fantastic job cross-selling its products from its different banners. Plus, on top of this impressive merchandising, Canadian Tire also has one of the top e-commerce platforms in the country.

Therefore, while it’s trading more than 30% off its highs, it’s easily one of the best stocks to buy now.

How cheap is the retailer today?

With Canadian Tire trading roughly 30% off its 52-week high, the stock is trading at just 11.3 times its expected normalized earnings per share (EPS) in 2024.

More importantly, though, with analysts expecting it to recover over the next few years, Canadian Tire is trading at just 8.9 times its expected normalized EPS in 2025.

This shows just how cheap Canadian Tire is, especially if it can recover its operations meaningfully over the next few quarters.

So, if you’re looking to take advantage of this environment and buy stocks on the dip today, Canadian Tire is certainly a top choice. Plus, it currently offers a dividend yield of roughly 5.3%.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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