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Canadian Tire (TSX:CTC.A) has been one of Canada’s strongest retail brands for decades. The company has survived several boom-bust cycles and has changed its brand portfolio and service offering along the way to serve a growing network of new customers.
The stock clearly reflects this successful journey. If you invested $1,000 in Canadian Tire stock in late 2008, you’d have roughly $3,770 today. That’s a compound annual growth rate of 9.3% over 15 years.
That’s better than the rest of the stock market. the S&P/TSX Composite Index has almost doubled since late 2008. It has increased by 110% during that period, or a compound annual growth rate of 4.7%.
Here’s a closer look at what makes Canadian Tire a top performer and whether this outperformance can continue in the future.
Competitive advantage
Canadian Tire’s competitive advantage is based on the location of its stores and the unique product mix it offers. “Our competitive advantage is that we are on the way to 90% of Canadians,” said Chief Executive Officer Greg Hicks. BNN Bloomberg.
The company has more than 1,700 locations, mostly concentrated in dense urban environments and densely populated parts of the country. That proximity to its customers is a key advantage.
Another advantage is the fact that stores often stock items that cannot be found elsewhere. Some products are marked specifically for sale at Canadian Tire stores. These include Mastercraft tools, SuperCycle bikes, BluePlanet light bulbs, As well as hardware, Motomaster auto parts, and FRANK food and beverages.
The company also has its own in-house brands such as Canvas, Jobmate, Yardworks and MasterChef, for everything from lawn care to cooking products.
This gives the company an advantage over other retailers and serves as a competitive moat that insulates the business.
Value and basics
Canadian Tire is undervalued. It trades at 12.3 times earnings per share, which translates to an earnings yield of 8.3%. That’s good for this economic environment.
However, the low valuation is a reflection of the company’s lack of growth in recent months. In the first quarter of 2023, Canadian Tire reported revenue of just $3.7 billion – 4.9% less than the same quarter last year. Net income, on the other hand, decreased by $228.3 million to $66.6 million in this quarter.
Sales and profits may slow, as Canadian consumers return to spending, and the economy enters a potential recession. However, Canadian Tire has survived past recessions and come back stronger. If you think this season is no different, it might be a good idea to add Canadian Tire to your watch list.
Bottom line
Canadian Tire has nearly quadrupled investor capital since the last financial crisis in 2008. Now, with the global economy on the brink of another recession, the company is seeing a slowdown in sales. But it can reverse in the long term, so investors should keep an eye on it for an opportunity to buy the dip.