With so many stocks across numerous sectors struggling in the current market environment, investors have their pick of the litter when it comes to buying stocks cheaply today that you can hold for years. And one of the best stocks in the country, Canadian Tire (TSX:CTC.A), has emerged as one of the top stocks to buy now, especially after it’s sold off so significantly, and its dividend now has a yield of 4.9%.
Canadian Tire is an excellent stock and is one of the best-known brands in Canada. For years, it has grown its operations rapidly and continues to have growth potential going forward, particularly when the economic environment improves.
For now, though, as a retailer, investors know it’s not immune to a slowdown in the economy. So, it’s not entirely surprising to see the stock down roughly 25% off its 52-week high. In addition, though, Canadian Tire is also trading at the cheapest price it’s been since the initial selloff at the start of the pandemic.
It’s clear that Canadian Tire is cheap, but is it worth buying with so many other stocks trading cheaply?
Is Canadian Tire stock worth buying today?
Despite a selloff in its stock price and some impacts on its business in the current market environment, Canadian Tire continues to have tonnes of long-term growth potential.
First off, it’s done an incredible job over the last decade acquiring more retail banners to expand its operations and help scale its costs. In addition, Canadian Tire has also done an impressive job with its in-store marketing and the cross-selling of its products from different banners in each of its stores.
Plus, with the stock’s highly popular loyalty program and its use of analytics, Canadian Tire has already shown it can leverage technology to improve the foot traffic in its stores and ultimately grow its sales.
So, although the economic environment is not ideal, it’s also impacting the majority of stocks in Canada right now. Therefore, while Canadian Tire temporarily struggles and its stock price declines as a result, this is an excellent opportunity to buy this high-potential business while it trades so cheaply.
How cheap is the retailer today?
As I mentioned earlier, with Canadian Tire now trading right around $140 a share, this is the cheapest it’s been since the pandemic.
And at $140 a share, the stock trades at a forward price-to-earnings (P/E) ratio of 9.3 times. That’s below its five and 10-year average P/E ratios of 10.8 times and 12.8 times, respectively.
However, it’s worth noting that, at the moment, Canadian Tire’s estimates for forward earnings are being impacted by the current environment. In fact, analysts expect that this year, Canadian Tire will see a 25% drop in normalized earnings per share (EPS).
That’s important to note because Canadian Tire already appears to be undervalued based on forward earnings that are expected to be lower than normal. Therefore, when the stock can ultimately recover, it should be trading extremely cheaply.
For example, while Canadian Tire trades at 9.3 times its expected earnings over the next four quarters, it trades at just 8.6 times its estimated earnings in 2024 and just 6.95 times its estimated earnings in 2025.
Furthermore, with the stock offering a yield of 4.9% today, that’s not only an attractive yield, but it’s also significantly higher than its five-year average of 3.33%.
And if you’re worried about the safety of the dividend, this year, Canadian Tire stock is expected to pay out just 49% of its expected normalized EPS, even after those earnings are expected to fall by 25%.
Therefore, while this high-quality and high-potential growth stock trades at such a compelling valuation, Canadian Tire is certainly one of the top stocks you can buy today.
