We may be in the first innings of a new bull market in stocks. Year to date, the TSX index has risen 2.3%, and the S&P 500 has risen 12.5%. The NASDAQ-100 is already in a bull market: it’s up 27% year to date!
If the stock market momentum from the first half of the year continues into the second, then investors are going to have a good time. If you believe that such a scenario will unfold, you might wonder what you should buy.
Alimentation Couche-Tard (TSX:ATD) is one stock you could strongly consider.
ATD has been one of Canada’s best performing stocks over the last decade. It has risen 1,260% since March 2012, which is a market-beating return by any standard. The stock has done so well that you might be wondering whether you “missed the opportunity.” It’s pretty rare for a stock to go up 1,260% and then do it once more. However, Alimentation Couche-Tard still has the characteristics that made it a good investment back in the old days. In this article, I will review those characteristics one by one.
The number one thing that ATD has going for it right now is strong fundamentals, including:
- Strong revenue growth.
- Positive and growing free cash flow.
- A 17% gross margin (gross profit divided by revenue).
- A 0.476 debt to equity ratio.
The low debt-to-equity ratio is particularly impressive. Normally, rapid growth stories like ATD tend to have heavy amounts of debt, because they spend so much money on expanding their business, which requires debt. That hasn’t been the case with ATD. The company achieved most of its growth and expansion by investing its profit back into its business. As a result, it hasn’t had to borrow as extensively as some of its competitors have. The end result has been huge capital gains, and a tiny (0.76%) dividend yield. Some dividend investors might consider ATD’s tiny yield a negative, but it’s not a problem as long as the company keeps growing. If it does, then its stock should rise and its dividend should increase over time.
Rising oil prices
Although Alimentation Couche-Tard isn’t a pure play oil stock, it does partially operate as an energy company: it runs gas stations. So, like many oil companies, its earnings should rise when oil prices rise. Gasoline prices are very closely correlated with oil prices, and oil prices have risen considerably in the last few months, going above $80. If oil prices keep rising, then ATD’s fuel sales will rise. Unlike pure play oil companies, however, Alimentation Couche-Tard doesn’t need high oil prices in order to grow. So, it’s arguably a “safer bet” than oil and gas stocks are.
Alimentation Couche-Tard has given investors a lot to celebrate over the last decade. Between its rising stock price and low but growing dividend, it has made many investors wealthy. When you witness a growth story like this one, it’s only natural to wonder whether it’s over. Fortunately, ATD’s recent results indicate that it still has the virtues which made it great in the first place.