Is It Too Late To Consider Buying Canadian Tire Corporation, Limited (TSE:CTC.A)?

While Canadian Tire Corporation, Limited (TSE:CTC.A) might not have the largest market cap around , it saw a double-digit share price rise of over 10% in the past couple of months on the TSX. The company is now trading at yearly-high levels following the recent surge in its share price. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Canadian Tire Corporation’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Canadian Tire Corporation

What's The Opportunity In Canadian Tire Corporation?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 23.14x is currently trading slightly above its industry peers’ ratio of 21.37x, which means if you buy Canadian Tire Corporation today, you’d be paying a relatively reasonable price for it. And if you believe Canadian Tire Corporation should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? 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 an opportunity to buy later on. 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. Canadian Tire Corporation's earnings over the next few years are expected to increase by 88%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in CTC.A’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at CTC.A? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping tabs on CTC.A, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the optimistic forecast is encouraging for CTC.A, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing Canadian Tire Corporation at this point in time. Case in point: We've spotted 4 warning signs for Canadian Tire Corporation you should be mindful of and 1 of them is a bit unpleasant.

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.