Couche-Tard Stock: Buy, Sell, or Hold

Alimentation Couche-Tard (TSX:ATD) stock has done well, but is it a buy today?

| More on:
Dice engraved with the words buy and sell

Image source: Getty Images.

Alimentation Couche-Tard (TSX:ATD) is one of the Canadian stock market’s best-kept secrets. Having risen 2,278% since the start of 2010, it has soundly outperformed the TSX, the S&P 500, the NASDAQ, and pretty much every other benchmark.

The question is, is it still a buy now?

It’s one thing to note that a company has done well, but quite another to confidently state it will continue doing well. As I will show in this article, ATD has at least one “ace” up its sleeve that could propel more growth going forward. However, there are other factors that don’t flatter it so much, and those have to be examined as well. So, let’s jump into the main reasons for buying, selling, and holding ATD stock.

The case for buying

The main reason why you’d want to buy ATD stock is because the company has a stellar capital-allocation track record. Over the last 10 years, the company has grown its earnings by 16.5% CAGR (a term that means compounded annualized growth). That’s not an accident. It’s the result of a prudent acquisition strategy on the part of ATD’s management. Rather than fuel growth by borrowing huge amounts of money, ATD’s leaders have instead opted to reinvest large percentages of their profit into the business.

ATD successfully acquired Circle K using this strategy. Today, it’s one of the biggest gas station chains in the country. The “reinvestment” strategy has resulted in Circle K having a low dividend yield, but with total returns as high as they have been, is that even a problem?

The case for selling

On the whole, I consider ATD a pretty good stock. Nevertheless, there are some less-flattering things about the company. Some might consider these things as signals that it’s time to sell.

One thing about ATD that’s not so positive is the fact that its growth has slowed down in recent years. Over the last 10 years, the company grew its revenue by 6% CAGR and its earnings by 16.5% CAGR. That sounds great, but over the last year, revenue declined 3.1%, while earnings grew a mere 5%. So, the growth has decelerated a lot.

That’s not to say that this trend will persist, but the five-year growth rate is down from the 10-year growth rate, the three-year growth rate is down from the five-year growth rate, and the 12-month revenue growth rate is negative. It does look like there’s something of a trend here.

The case for holding

The case for holding ATD rests on the fact that the company is well managed. The deceleration in ATD’s growth is explained by the fact that it grew so rapidly 10 years ago. In the 2010s, ATD was busy expanding Circle K all over Canada, so, naturally, it was growing a lot in that period.

Today, Circle K has reached market saturation, so growth is a little slower. However, Couche-Tard continues its expansion in Europe, so it’s not like growth is done forever. The growth might even ramp up somewhat if oil prices increase, as Circle K is in the business of selling fuel. Plus, the stock only trades at 18 times earnings, so it’s not like you’re paying a huge premium for what you’re getting.

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 Andrew Button has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.

More on Dividend Stocks

money cash dividends
Dividend Stocks

Beat the Dow Jones With This Cash-Gushing Dividend Stock

Here's why this high-dividend TSX stock should beat the Dow Jones index in 2024 and beyond.

Read more »

Pixelated acronym REIT made from cubes, mosaic pattern
Dividend Stocks

The Top Canadian REITs to Buy in February 2024

Are you looking to boost your income and buy some stocks at a bargain? Here are three top REITs that…

Read more »

calculate and analyze stock
Dividend Stocks

Better Buy in 2024: Canadian Utilities Stock vs. Enbridge Stock

Dividend stocks like Enbridge (TSX:ENB) and Canadian Utilities (TSX:CSU) are staples of Canadians' portfolios.

Read more »

Increasing yield
Dividend Stocks

2 No-Brainer High-Yield Dividend Stocks to Buy Right Now for Less Than $1,000

Got $1,000? Here are two no-brainer stocks to buy now at their lows and start getting immediate returns of $75.

Read more »

Gas pipelines
Dividend Stocks

Is Keyera a Buy After Its Solid Fourth-Quarter Earnings?

Given Keyera's solid quarterly performance and healthy growth prospects, I am bullish on it.

Read more »

data analyze research
Dividend Stocks

Canadian Tire 2023 Earnings: Better Days Ahead

Weak consumer demand led to a drop in Canadian Tire's earnings. Investors need patience to enjoy better days with the…

Read more »

Economic Turbulence
Dividend Stocks

Intact Financial Climbs to All-Time High on Buybacks, With an 11% Dividend Increase

Intact stock (TSX:IFC) rose after the company reported a difficult year, but managed to increase buybacks and its dividend.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Manulife Stock Raises Dividend by 9.6% on Good Earnings in 2023

Manulife stock jumped almost 9% after earnings as it was too cheap to ignore! Its dividend yield is not bad,…

Read more »