The Motley Fool

Could This Be the Most Underrated Growth Stock on the TSX?

Young adult woman walking up the stairs with sun sport background
Image source: Getty Images

Currently, a lot of the focus on the TSX is on pot stocks, and rightfully so given the growth we’ve seen from them. Aurora Cannabis Inc (TSX:ACB)(NYSE:ACB) has risen sharply since the start of the year, with the stock up around 80%. And now that we’ve seen a full quarter worth of recreational marijuana sales, investors are becoming excited about the potential that the industry could have over the long term.

After all, with many supply issues still plaguing the industry and holding it back, there’s still a lot more sales and potential down the road. However, there’s one stock that might be an even better buy today that could cash in from cannabis as well.

Alimentation Couche-Tard Inc (TSX:ATD.B) has expressed interest in cannabis in the past and recently linked up with Aurora’s biggest rival to help a pot shop in Ontario. The company has solid growth of its own, with its most recent quarter showing record earnings, as Couche-Tard has consistently been able to produce strong numbers over the years.

In just four years, the company has been able to double its earnings while growing its sales by 35%. It has been able to do this via acquisition, but it’s also testament to the company’s strength and efficiency to be able to do so while actually growing sales. Cannabis companies like Aurora have been involved in many acquisitions, but have struggled to put them all together and produce a profit.

That’s what makes Couche-Tard an intriguing investment, as it’s already doing a good job of generating sales and could benefit from a strong cannabis industry. Although the company’s interests in cannabis are limited today, Couche-Tard is definitely keeping a close eye on the industry and I wouldn’t be surprised if it gets more involved and even starts selling marijuana in some of its stores.

Unlike Aurora and its peers, Couche-Tard is a reasonable buy given the success that the stock has had. At a price-to-earnings ratio of just 23, Couche-Tard is not an expensive buy with the numbers it has been able to produce thus far. And with a price-to-sales multiple of less than one, it’s nowhere near the sky-high valuation at which many marijuana stocks trade.

Bottom line

Couche-Tard is a solid growth stock on its own, which is evident in the company’s recent financial results. However, add marijuana into the mix and its sales numbers could get even stronger. Especially with Couche-Tard being a big, global company with offices around the world, if we see recreational marijuana become legalized in other countries, the opportunities for the stock could be even greater.

This is definitely a stock I plan to keep a close eye on, as in the past year it has risen by more than 35%, and if we look at five years then its returns jump to over 160%. Over the long term, Couche-Tard has proven to be a good buy, and although investors haven’t shown it the same excitement that they have for pot stocks, that simply means it could just be more of a deal for those that buy it today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor David Jagielski has no position in any of the stocks mentioned. Alimentation Couche-Tard is a recommendation of Stock Advisor Canada.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.