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

Canadian Tire Corporation, Limited (TSE:CTC.A), might not be a large cap stock, but it saw significant share price movement during recent months on the TSX, rising to highs of CA$193 and falling to the lows of CA$160. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Canadian Tire Corporation's current trading price of CA$170 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Canadian Tire Corporation’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

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What Is Canadian Tire Corporation Worth?

Good news, investors! Canadian Tire Corporation is still a bargain right now according to our price multiple model, which compares the company's price-to-earnings ratio to the industry average. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 11.23x is currently well-below the industry average of 20.82x, meaning that it is trading at a cheaper price relative to its peers. Another thing to keep in mind is that Canadian Tire Corporation’s share price is quite stable relative to the rest of the market, as indicated by its low beta. This means that if you believe the current share price should move towards its industry peers, a low beta could suggest it is not likely to reach that level anytime soon, and once it’s there, it may be hard to fall back down into an attractive buying range again.

See our latest analysis for Canadian Tire Corporation

Can we expect growth from Canadian Tire Corporation?

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. 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. However, with a negative profit growth of -12% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Canadian Tire Corporation. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although CTC.A is currently trading below the industry PE ratio, the adverse prospect of negative growth brings about some degree of risk. We recommend you think about whether you want to increase your portfolio exposure to CTC.A, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping tabs on CTC.A for some time, but hesitant on making the leap, we recommend you research further into the stock. Given its current price multiple, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about Canadian Tire Corporation as a business, it's important to be aware of any risks it's facing. While conducting our analysis, we found that Canadian Tire Corporation has 1 warning sign and it would be unwise to ignore it.

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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.