Canadian Tire Corporation (TSX:CTC.A) stock is buzzing. Shares recently surged past $180, hitting fresh 52-week highs on strong momentum. While the stock trades above the average analyst price target of $170.18, it remains below its all-time highs above $200, and many investors are rightly asking: Is Canadian Tire stock still a buy at these levels? Let’s dig into the retail giant’s bull case, the risks, and what the next few years might hold.
The bull case on Canadian Tire stock
Canadian Tire isn’t resting on its laurels after enduring two years of sluggish revenue generation. Its ambitious four-year “True North” transformation strategy, launched earlier this year, is a fundamental shift aimed at leveraging the company’s unique strengths, including strong customer loyalty, a treasure trove of customer data, modern store layouts, and financial resilience.
A popular rewards program
Firstly, the retailer’s Triangle Rewards program is a powerhouse, boasting 11 million members. New partnerships with Petro-Canada, Royal Bank of Canada, and WestJet significantly expand where eCTM (electronic Canadian Tire Money) is earned, bringing more customers into the ecosystem and generating invaluable data. Think of it as a flywheel: more partners mean more rewards, more data, better personalization, and ultimately, more sales.
A data superpower
Secondly, Canadian Tire’s data is a superpower. Canadian Tire possesses “generational relationships and privileged first-party data” unmatched by competitors. True North puts this data at the heart of everything – from personalized offers based on “jobs, joys, and weekend plans” to optimizing pricing and promotions via its artificial intelligence (AI) platform, “David.” Early wins are evident, such as 19 consecutive quarters of growth in Canadian Tire’s auto service business, fueled by data insights.
Further, modernizing retail is a big thing. The company is rolling out successful new store concepts and significantly boosting its e-commerce game. Impressive Net Promoter Scores (NPS) for click-and-collect and the rapid rollout of same-day ship-to-home (now covering nearly 90% of Canadians) are paying off. During the first quarter, e-commerce growth outpaced physical store sales growth.
A profitable retailer
Lastly, Canadian Tire’s financial and operating resilience adds capacity to generate positive shareholder returns. Despite past revenue challenges, Canadian Tire boasts superior profitability: Gross margins (34.2%), operating margins (8.2%), and net income margins (5.2%) all outshine industry averages. The recent sale of Helly Hansen unlocked $1.3 billion, which helps fund a doubled-up $400 million share repurchase program and strengthens the balance sheet.
The bear case
Buying Canadian Tire stock above $180 isn’t without significant risks. Investors should consider valuation concerns, macroeconomic sensitivity, execution risks, and e-commerce competition.
Trading above analyst targets highlights the premium the market is placing on future success. If the True North execution plan stumbles or Canada’s macroeconomic environment worsens, this premium could evaporate quickly.
Further, the consumer discretionary stock retains its high macroeconomic sensitivity. As a consumer cyclical retailer selling mostly discretionary goods, the company fares badly in recessions. While first-quarter earnings results showed a surprising return to positive discretionary spending (the first in three years) and resilient consumers so far, prolonged economic weakness or rising unemployment would hurt. Tariffs also remain a watchpoint.
Beware of CTC’s execution risk! True North is complex. It involves integrating data across banners, rolling out new tech (like the David AI pricing platform), changing internal mindsets, and managing significant IT investments that may pressure near-term expenses. Management’s expectations for $100 million in operating expense savings by 2026 aren’t guaranteed.
Most noteworthy, Canadian Tire’s e-commerce shift is directly confrontational to Amazon.com. While Canadian Tire’s omnichannel improvements are impressive, e-commerce penetration in Canada is still growing. Competing long-term with Amazon’s scale and convenience is an ongoing challenge. Growth in e-commerce and sales declines in brick-and-mortar stores won’t be a winning strategy. The company needs both to thrive.
Should you buy Canadian Tire stock above $180?
Canadian Tire stock above $180 is undeniably a bet on the successful execution of its True North strategy. It implies buying shares at an outrageous price-earnings-to-growth (PEG) multiple of 7.4, which implies the stock could be significantly overvalued given its future earnings growth potential.
If you’re wary of paying expensive premiums and concerned about consumer spending resilience, or doubtful about complex corporate transformations, it might be prudent to wait for a potential pullback or clearer evidence that True North is delivering its promised “juicy fruits.”
However, if you believe in the success of the ongoing transformative strategy in driving consistent market share gains and earnings growth that eventually justify the current premium, then a new position, which also earns a generous dividend yielding 3.9%, could make sense for the long term.
