Growth stocks finally appear to be taking a breather. Indeed, companies with higher-than-average growth rates have taken a back seat to cyclical value plays right now. This makes sense, as expectations of inflation pick up, as we (hopefully) near the end of this terrible pandemic.
However, this sell-off appears to be indiscriminate. Great growth companies such as Alimentation Couche-Tard (TSX:ATD.B) has been one of the babies thrown out with the bathwater. Accordingly, I think this sell-off presents an interesting buying opportunity for investors looking for growth at a reasonable price today.
Here’s more on why I think Couche-Tard is a top pick right now.
Couche-Tard has some impressive growth potential
Fellow Fool contributor Joey Frenette believes Couche-Tard is a top-notch growth business. He wrote: “Couche-Tard is actually a fast-growing firm that’s been thrown in the value basket in recent years. Management previously noted that it desires to double its net profits in five years. If that’s not a growth business, I don’t know what is!”
I couldn’t agree more. A doubling of any stock’s profit over a five year period is something investors should certainly consider.
Many growth investors such as fabled Cathie Wood have talked about hurdle rates of 15% per year on revenue alone. What Couche-Tard is aiming for is a similar growth rate, on the company’s bottom line. That’s worth a heck of a lot more to fundamental long-term investors. Accordingly, this is the right type of growth play — a profitable one — that investors should consider right now.
Carrefour deal should be reassessed by the market
The initial assessment of Couche-Tard’s $20 billion offer for French retailer Carrefour has been downright ugly. The market didn’t like it — not one bit.
Indeed, that’s a hefty price tag to pay for any company. The premium on this deal, the political risk associated with the offer, and the heavy shift into retail spooked some investors. Indeed, there are a core group of Couche-Tard aficionados who believe the company should stick to its bread and butter: convenience stores and gas stations.
I, however, think this offer was an excellent move.
First, I see this as a strategic move into a complementary sector that Couche-Tard should do very well in. Convenience stores and full-on retail really aren’t that different. Couche-Tard has done an excellent job of maximize throughput and sales in its existing footprint. Accordingly, I don’t think it’s a leap to suggest it could do the same with a retailer like Carrefour.
Second, gas stations are likely to be on the decline, as EV adoption and electrification take over. It’s still early innings on this trade, but the secular shift is real. Couche-Tard’s management team has something others lack: strategic foresight. And I really like that.
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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 Chris MacDonald has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.