Don’t look now, but Alimentation Couche-Tard (TSX:ATD.B) is one of the hottest stocks on the TSX right now after soaring 45% from the bottom reached last May. After years of consolidating, the stock has finally picked up a massive amount of momentum such that not even the October-December sell-off was enough to keep the stock down. Indeed, when it comes to stocks, the longer they consolidate, the bigger they break out.
For patient investors that stood in Couche-Tard’s corner, despite the unrewarding fluctuations endured in the consolidation channel, this breakout is a long time coming. And while Couche-Tard may seem like a missed opportunity for those who witnessed the major moves from the sidelines, I think the stock is still a pretty good value when you consider that the now improved balance sheet that could pave the way for more significant (or more frequent) acquisitions in 2019, which will surely be a boon for the stock.
At the time of writing, Couche-Tard trades at a fairly rich 23.7 times trailing earnings, but based on next year’s expected earnings, Couche-Tard trades at a pretty modest 16.9 forward P/E. So, despite the big waves that have been made of late, the stock isn’t unsupported, as are most other red-hot momentum stocks that aren’t nearly as profitable.
Not only has Couche-Tard been firing on all cylinders (both on comps and international expansion), but consumer staples have suddenly become great again through the eyes of investors. With management slated to double over the next five years, we could witness a slew of M&A activities, as the company continues driving operational efficiencies and comps through the roof.
Indeed, Couche-Tard has the perfect EPS-driving one-two punch (comps and inorganic growth) that very few other companies possess. With that in mind, not only does Couche-Tard deserve a premium multiple for its growth profile, it deserves another premium layer to account for the talents of management, the more transparent long-term growth runway, and the fact that Couche-Tard is one of the few consumer staples trading on the TSX. Summing these premium traits up, and I believe Couche-Tard rightfully deserves to trade at 30 times earnings.
Right now, you’re getting the stock for just north of 23 times trailing earnings, so to me, it looks like you’re getting a hefty discount on a premium growth stock that’s not about to slow down anytime soon. I’m a buyer, right here and now!
Stay hungry. Stay Foolish.
