The Motley Fool

1 Dirt-Cheap TSX Stock Poised for a Parabolic Move

Image source: Getty Images

The search for value is on. Indeed, investors are searching high and low for the best undervalued picks on the market today. Such a search is a difficult one, given where valuations are right now relative to historical levels.

That said, there are a few gems out there. In Canada, one of my top undervalued picks remains Alimentation Couche-Tard (TSX:ATD.B). I think that once value comes into focus again, this is a stock that could go on a very nice ride. Parabolic? Maybe. But once Couche-Tard’s valuation catches up to its underlying fundamentals, this is a stock that can fly.

Here’s more on why this could be one of the best value picks in Canada right now.

Analyst consensus getting stronger

Analysts matter. For investors looking to see what the experts think about given stocks, analyst ratings and price targets are a great gauge of how well a company is performing. For Couche-Tard, the analysts appear to be getting even more bullish on this value/growth play.

Indeed, Desjardins Securities analyst Chris Li has raised his financial expectations for Alimentation Couche-Tard. This comes prior to the release of fourth-quarter financial results. He believes the company will witness continuous growth with its improvement initiatives, and strong underlying fundamentals.

Li has increased his revenue projection for Couche-Tard for both 2021 and 2022. He increased the earning per shares prediction from US$2.13 and US$1.95 to US$2.35 and US$2.00, respectively. Couche-Tard shares have a current average price target of $52.36 on the Street. This implies an upside of around 8% from here.

Personally, I think Couche-Tard is a stock with much more upside than the analysts are giving it. This is a company with growth potential that’s currently being undervalued by the markets. That said, I think Couche-Tard’s performance is resulting in more target price increases coming in. It’s just a matter of time.

Bottom line

Following a failed bid for French retailer Carrefour, and relatively poor performance these past quarters, investors and analysts now seem to be focused on the future. For long-term growth plays like Couche-Tard, this is a good thing.

I anticipate that Couche-Tard will continue to outperform. The company’s share price remains more than 10% below its 2021 high and approximately 20% below pre-pandemic levels. That’s cheap. Factor in a valuation multiple of only 15-times earnings, with a strong growth outlook, and investors have a very undervalued stock to consider.

As we move forward into a post-pandemic world, Couche-Tard is going to be a key beneficiary. This is a stock with tremendous upside that’s being valued as if the future will be worse than it has been historically. I just don’t see that happening.

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 stocks mentioned in this article. The Motley Fool owns shares of and recommends ALIMENTATION COUCHE-TARD INC.

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.