When it comes to some of the best-known brands in Canada, especially in the retail space, Canadian Tire (TSX: CTC.A) is among the leaders. Yet despite its popularity and significant size, Canadian Tire stock continues to have impressive growth potential, which is why it’s one of the best stocks to keep your eye on today.
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Why is Canadian Tire one of the best retail stocks in Canada?
There are several reasons why Canadian Tire is one of the very best retail stocks in Canada.
First and foremost, Canadian Tire owns multiple retail banners, allowing it to sell a wide variety of products and appeal to a broad customer base. This diversification creates synergies that help the company scale costs efficiently and capitalize on cross-selling opportunities.
Another major strength is its impressive loyalty program, which consists of more than 11 million members. This program helps to drive repeat business and allows Canadian Tire to maintain a competitive edge in the retail market.
In addition, Canadian Tire’s financial services segment provides another competitive advantage. With over 2.3 million credit card holders, the company gains valuable insights into consumer spending habits, improving its ability to target customers effectively and ultimately grow its sales.
Canadian Tire stock has also made significant investments in its e-commerce platform, which has been essential for future growth. For example, the retailer now boasts over one billion digital visits annually across all its retail banners, making it the second most visited online retailer in Canada.
In early 2022, management set an ambitious goal of growing its annual normalized earnings per share (EPS) from $18.91 in 2021 to over $26 by the end of 2025. However, while those goals highlighted the company’s confidence in its growth strategy, the past two years have presented challenges that are largely outside of its control.
For example, higher inflation and rising interest rates weighed on consumer spending throughout the second half of 2022 as well as 2023, impacting sales across the retail sector. Additionally, unseasonal weather also affected Canadian Tire’s sales of its more essential goods. Therefore, as sales were impacted, so too were its margins and, ultimately, its ability to generate earnings.
In fact, in 2023, Canadian Tire’s total revenue declined just 6.5% from 2022, yet its normalized EPS fell by over 44%, leading to a significant dip in the share price.
With the stock now recovering, though, it not only offers significant growth potential in the coming years once again, but it also offers value today while it continues to trade cheaply.
Where will the Canadian retailer be in five years?
The final results for 2024 aren’t in just yet, with Canadian Tire stock expected to report earnings in February. However, analysts predict that its normalized EPS will be roughly $12.66, an increase of 22% from 2023, yet still down significantly from the $18.75 of normalized EPS it generated in 2022 and $18.91 of normalized EPS it generated in 2021.
Despite this, Canadian Tire’s stock remains attractive, as 22% growth shows its ability to recover from recent challenges. Furthermore, analysts expect the significant growth to continue in the coming years.
For 2025, analysts are projecting that its normalized EPS will grow to $13.52, an increase of 6.8%. Furthermore, in 2026, its normalized EPS is expected to rise to $14.74, an increase of 9% year over year. These consistent gains demonstrate Canadian Tire’s ability to consistently increase sales and, more importantly, its margins.
However, it’s worth noting that the company’s performance over the next five years will heavily depend on external economic factors, such as the trajectory of inflation, interest rates, and consumer spending trends. While Canadian Tire stock has proven its resilience and ability to adapt, the broader economic environment remains uncertain.
With that being said, though, Canadian Tire stock also pays investors to wait, offering an attractive dividend that is both sustainable and appealing with a current yield of 4.4%.
Therefore, with its strong fundamentals, diversified operations, and impressive growth potential, Canadian Tire remains a compelling investment for long-term investors. Plus, with the stock trading at a forward price-to-earnings ratio of just 12.1 times, below its 10-year average of 12.4 times, it’s certainly among the top Canadian stocks to buy now.
