Alimentation Couche Tard Inc. (TSX:ATD.B) took a huge hit on the chin on Thursday as the stock tumbled 3.57% with no real negative news being released. Couche Tard is an incredible earnings-growth story that appears to be ripe for a breakout sometime over the next year. Couche Tard has struggled to sustain a rally past its $60 level of resistance, but I think a few promising earnings reports could be the trigger that sends shares flying to higher levels.
Couche Tard has an incredible management team that is always on the hunt for opportunities to create long-term value for shareholders. The global convenience store industry is still very fragmented. Going forward, there are many growth prospects in foreign and domestic markets that could sustain a compound annual growth rate in the high double digits.
Here are five potential tailwinds that the company may ride over the long term.
U.S. stores set to benefit from strengthening economy
Couche Tard has way too many tailwinds to be trading flat right now. The CST Brands deal beefs up the company’s U.S. exposure. Couche Tard will benefit from a strengthening U.S. economy once the Trump administration’s pro-business promises are put in place.
CST Brands acquisition synergies
The CST Brands deal got the green light under the condition that Couche Tard sells about 71 of its locations to another operator. The deal is going to give earnings a huge bump. Over the next few years, there are many synergy opportunities that will be unlocked that will make a significant impact to the company’ bottom line.
Asian growth prospects
This is the tailwind that I believe many investors may overlook. Couche Tard founder Alain Bouchard stated that the company is looking into the Asian markets for growth opportunities.
Many Asian countries, including Vietnam and the Philippines, are set to see compound annual growth rates as high as 37.4% according IGD Research.
That’s a huge amount of growth, and Couche Tard is positioning itself to get a front-row seat to these markets.
Couche Tard could sell cannabis in Quebec
The management team is aggressively making moves that will allow its Quebec Couche Tard locations to sell cannabis once it becomes legal. The management team hired Marie-Eve Bedard, a lobbyist, to get Couche Tard at the forefront of what I believe is a gigantic opportunity.
Cannabis sales across Canada? The U.S.?
This is a big question mark right now, but it’s definitely some interesting food for thought. Many investors have been focusing their efforts to invest in Canadian cannabis producers, but they have neglected the potential for distributors.
Nobody knows exactly how cannabis will be distributed once it’s legalized. There’s still a taboo surrounding the subject. Some pundits believe cannabis will be distributed through liquor stores, and others believe dispensaries will be the exclusive distributor of the drug.
I think it’s not too far-fetched to look to convenience stores to become distributors of cannabis. As the taboo fades, I believe regulators may become more open to this means of cannabis distribution, and if Couche Tard gets the green light, shares will skyrocket into the atmosphere.
Of course, nobody knows when or if this will happen, so this tailwind is speculative for now.
Bottom line
These are just five potential tailwinds that could make Couche Tard a huge winner over the next five years and beyond. Although the stock has slowed down, the growth prospects have not. For a stock with this much growth potential, I believe a 22.96 price-to-earnings multiple is a very small price to pay.
Stay smart. Stay hungry. Stay Foolish.
