Shareholders of Alimentation Couche Tard Inc. (TSX:ATD.B) have a lot to be thankful for given the past performance of the stock. The returns from the price appreciation alone have been in excess of 500% over the past five years.
During the past 12 months, however, the stock price has started to languish and has been almost flat. The price return for the past year has been -1.88% with a dividend yield which is no better than 0.59%. Essentially, new shareholders have had no reason to be excited.
Holding on to grandiose hopes for the future, however, the company has done a lot of things correctly. From fiscal 2013 to fiscal 2016, earnings per share have increased from $1.07 to $2.06, which equates to a CAGR (compounded annual growth rate) of 48.80%.
Although the company is still expanding with very high expectations for the future, it will be difficult for a relatively mature company to continue increasing the bottom line at these levels. Let’s not forgot, when we grow a large number at a high rate, it becomes an extremely large number which will act as an anchor on future growth.
With a current market capitalization in excess of $35 billion, the slowdown may happen sooner rather than later.
Oil
Although irrelevant to many, the lower price of gasoline has had a tremendous impact on this company.
Until the end of 2014, the high price of fuel had consumers feeling pinched at the pumps. Only after the price of fuel came down did consumers have a few more dollars to splurge on a chocolate bar or other “feel good” items; the sales from these products trickled through to the bottom line of Alimentation Couche Tard Inc.
Without a doubt, the company has done much more than simply be in the right place at the right time. At a current multiple close to 25 times earnings and a negligible dividend yield, there is simply too much downside potential to pique my interest. We have to remember to ask the question: What am I giving vs. what am I getting?
In this case, new investors are buying into what is considered a gem. With an excellent performance in the rear-view mirror, fatigue is starting to set in. In order to justify the high multiple, earnings will have to grow quickly to meet expectations. Two years into low oil prices, the company may face strong headwinds instead of the tailwinds of the past few years.
Looking at the current dividend and payout ratios, the dividend will not be the saving grace. Had the company paid out 40% of the most recent fiscal earnings, the dividend would be approximately $0.82 translating to a yield of less than 1.5%. We have yet to find a saviour.
Conclusion
Given the risk/reward of offered by this security, there is ample room on my watch list, but nothing more at current levels. Remember, stay Foolish!
