Shares of Canadian convenience store kingpin Alimentation Couche-Tard (TSX: ATD) are back on the retreat after hitting a fresh new all-time high just north of the $73 per share mark. Today, shares are at around $70 per share but still seem incredibly cheap at just 17.1 times trailing price-to-earnings (P/E). Undoubtedly, it’s hard to name another earnings growth play on the TSX Index that’s been so steady and resilient over the past five years.
Though there have been occasional dips in the road, Couche stock has powered its way to a relatively smooth gain of more than 116% in five years. Can the same type of returns be in the cards for the next five years, as the firm looks to continue seizing opportunities in the global convenience store space in the face of a potential recession?
Couche-Tard stock is back to its market-beating ways
Not only do I think Couche-Tard will keep up its market-beating ways over the next 10 years and beyond, but I think it can continue climbing, even as the nation falls into an economic downturn. Indeed, Couche-Tard knows how to create value from M&A.
Just a few years ago, some folks may have been inclined to criticize the company for having too much cash when interest rates were at or around zero (those days are long over, folks!). Nowadays, Couche-Tard’s managers look incredibly smart for not making deals for the sake of making deals. Remember, to win at the M&A game, you need to be able to pick up a company at a good price.
If the synergies and all the sort don’t add up to a value that’s less than the price paid, you may very well have a deal that destroys value. Indeed, acquisitions can be a double-edged sword, and only disciplined managers with expertise in the industry can consistently create value as Couche-Tard’s managers do.
These days, Couche-Tard seems to be in a wonderful spot. Rates are higher, and they’re continuing to ascend as central banks aim to put away high inflation. With enough cash to make a big splash in M&A, it’s no mystery as to why the stock has continued trending higher, even with concerns about a stalling economy.
Where could Couche-Tard look for a deal?
Indeed, it’s always great to have the “option” to pick up a bargain. And with Couche’s impressive liquidity position, you’ll get such an option with the name. The only question that remains is where the management team will look to put its next big bet. Personally, I think another convenience store deal could continue driving ATD stock higher. However, the firm may also wish to keep the door open to a more transformative deal, like the potential acquisition of a grocer.
You see, the fresh food and merchandising expansion could be key to next-level bottom-line growth for the firm as it looks to move on from lower-margin fuel sales. Indeed, buying another convenience retailer seems like a safer bet. And in that regard, I think buying up Parkland Fuel (TSX: PKI) makes a lot of sense, especially while it’s still off from its 2020 all-time high of $48 and change. Parkland owns many gas stations and connected convenience stores that may be better in the hands of Couche’s managers.
The $7 billion company would probably be acquired for north of $8 billion at this point. In any case, Couche-Tard has options. And I think it will be sure to exercise them!
