Is Canadian Tire Corporation, Limited (TSE:CTC.A) Potentially Undervalued?

Canadian Tire Corporation, Limited (TSE:CTC.A), is not the largest company out there, but it saw a decent share price growth in the teens level on the TSX over the last few months. As a mid-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s examine Canadian Tire Corporation’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Canadian Tire Corporation

Is Canadian Tire Corporation Still Cheap?

Great news for investors – Canadian Tire Corporation is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is CA$256.29, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. However, given that Canadian Tire Corporation’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us another chance to buy in the future. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Canadian Tire Corporation?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by a double-digit 17% over the next couple of years, the outlook is positive for Canadian Tire Corporation. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? Since CTC.A is currently undervalued, it may be a great time to increase your holdings in the stock. With an optimistic outlook on the horizon, it seems like this growth has not yet been fully factored into the share price. However, there are also other factors such as capital structure to consider, which could explain the current undervaluation.

Are you a potential investor? If you’ve been keeping an eye on CTC.A for a while, now might be the time to make a leap. Its prosperous future outlook isn’t fully reflected in the current share price yet, which means it’s not too late to buy CTC.A. But before you make any investment decisions, consider other factors such as the strength of its balance sheet, in order to make a well-informed buy.

So while earnings quality is important, it's equally important to consider the risks facing Canadian Tire Corporation at this point in time. Every company has risks, and we've spotted 2 warning signs for Canadian Tire Corporation (of which 1 is potentially serious!) you should know about.

If you are no longer interested in Canadian Tire Corporation, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.