Couche-Tard Stock: Will the Upswing Continue for This Hot 2022 Gainer?

Couche-Tard (TSX:ATD) stock could be in for more gains after delivering exceptional performance through 2022.

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2022 was a bleak year for stock markets, with recession fears and concerns over higher interest rates. Thus far, 2023 has seen hope, but whether or not the optimistic start to the year continues remains a mystery.

Currently, many market strategists have lowered their expectations for the S&P 500. Indeed, these same strategists could find themselves in a hurry to raise their targets after a rally is already in the books. It’s hard to time the markets consistently. And after surprising moves, there will always be an incentive to change one’s stance after the fact.

In this piece, we’ll have a look at one of the TSX stocks that bucked the trend, ending the year with a positive gain. Over the past year, shares of the convenience store retailer Couche-Tard (TSX:ATD) are up nearly 25%. That’s an impressive gain in a normal year of a bull market, let alone a flat year for the TSX Index that saw the average fall more than 17% at its worst.

Couche-Tard stock: More gains ahead?

Looking ahead, Couche-Tard seems like a name that can continue to outpace the rest of the market, as earnings across the board begin to feel the heat of a recession. Couche-Tard will feel the same macro headwinds as most other firms. The difference is that Couche-Tard has the financial strength (strong balance sheet) and superior operational stability to move through harsh times.

Though the stock has had quite a run, shares remain inexpensive at 16.5 times forward price to earnings. Undoubtedly, it’s been a while since the convenience store giant made a large-scale deal. With macro pressures weighing heavily on a lot of firms, it would make sense for Couche to pounce with its nice cash load.

Earnings growth, not hype, supports ATD stock

Big deal or not, Couche-Tard still stands out as a gem that has real earnings growth supporting its rally. Indeed, multiple expansion opens a door for further gains if investors appreciate the firm for its track record of long-term growth.

Couche-Tard is overdue for a large deal. However, a large number of small deals should be expected. Recently, Couche-Tard bought True Blue Car Wash. The minor deal saw the firm scoop up 65 car washes across a number of U.S. states. As always, Couche-Tard sees potential synergies as a result of the deal. Indeed, Couche-Tard is more of a creator of value through deals than a serial acquirer of convenience stores.

Cash washes are a very intriguing parallel market that could help Couche better adapt to the electric vehicle age. Indeed, it doesn’t matter how a car is powered, nothing beats a good car wash. As Couche continues to explore growth arenas beyond convenience stores and gas stations, I’d look for Couche’s list of potential targets to increase. The greater the list, the greater the opportunity to get a bargain.

The bottom line on Couche-Tard stock

At the end of the day, Couche-Tard is doing its best to grow earnings in an effective manner. The managers aren’t chasing any sort of quick gain.

They’re all about the long term, making ATD stock a perfect long-term holding to outperform in all sorts of environments. I think 2023 could see Couche build on the gains from last year.

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 Joey Frenette has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.

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