Is Couche-Tard a Buy?

Alimentation Couche-Tard is a wonderful company at a fair price. Long-term investors can buy some now and buy more on dips.

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Around the world, people are willing to pay a bit more for convenience, particularly for people on the go or in a hurry. Convenience store consolidator Alimentation Couche-Tard (TSX:ATD) has been a smart acquirer. It attracts foot traffic, as many of its locations also offer road transportation fuel.

The stock has climbed 29% or so over the last 12 months. That’s an extraordinary run, especially when compared to the Canadian stock market’s jump of about 6%! Is it too pricey for investors to buy now? Let’s take a closer look.

Couche-Tard stock has made its long-term investors wealthy

It was pretty much a smart move for investors to buy the stock on dips and market corrections over the years. For example, Alimentation Couche-Tard has been a top TSX stock, delivering annualized returns of close to 19% since the beginning of 2007. That’s the equivalent of turning an initial investment of $10,000 into approximately $190,920. That is, it has grown investors’ money 19-fold in about 17 years.

Investors who invested much later, say, five years ago, would have turned $10,000 into about $23,370 for annualized returns of just north of 18% per year, which is very respectable. During that period, the Canadian stock market returns were under 11% per year.

The growth stock’s expansion

Much of the company’s growth over the last four decades is attributable to its mergers and acquisitions strategy. Over the years, it has expanded across Canada and into the United States, Europe, and Asia. Other than creating synergies from cost savings, it has also been applying what’s learned from one place to another. Furthermore, it innovates with localized offerings to captivate its customers.

Importantly, Couche-Tard is responsible in its expansion — specifically, in the aspect of not over-leveraging its balance sheet. After it makes major acquisitions, it quickly reduces its debt levels. Its leverage ratio target threshold is 2.25 times.

It ended fiscal 2023 with a leverage ratio of just under 1.5 times. So, it had the means to make another meaningful acquisition. Indeed, earlier this month, it closed the TotalEnergies acquisition and thereby entered four new countries in Europe: Germany, the Netherlands, Belgium, and Luxembourg.

Through this acquisition, Couche-Tard added 2,175 sites (of which 69% are company-owned, with the rest being dealer owned) to its network. It now operates in 29 countries and territories, with more than 16,700 stores, of which roughly 78% offer road transportation fuel.

Is Couche-Tard stock a buy?

From the fabulous execution of the business over the long run, thereby driving extraordinary long-term wealth creation for its shareholders, Couche-Tard is a worthy holding in diversified portfolios. At $80.36 per share at writing, the stock trades at about 18.7 times its adjusted earnings, which is roughly where its long-term normal valuation stands. So, the stock is fairly valued.

Analysts agree the stock is fairly valued, too. They have a 12-month price target of just north of $86 for the stock. As Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Couche-Tard is definitely a wonderful company. If you like the company, you can build a position and look to buy more on dips.

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 Kay Ng 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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