Is Couche-Tard Stock a Buy?

ATD (TSX:ATD) stock has had a rough few years, but it has managed to float through it and expand, even in the face of these challenges.

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It’s been a difficult few years for Alimentation Couche-Tard (TSX:ATD). The pandemic was difficult, the economy has been hard, and inflation hasn’t been good for sales. And yet, the company has managed to do quite well year after year.

Now, analysts are weighing in and are bullish on the stock. So, is Couche-Tard stock a buy?

What to consider

There are many factors to consider before getting into a company and whether it’s a buy. So, let’s look at a few things for convenience stores in general when considering buying the stock.

The industry is a competitive one, so investors will need to consider the overall health of the convenience store industry and ATD stock’s position in it. A strong market share and effective cost management would certainly give them an advantage.

Further, ATD stock would need to have a strong acquisition strategy to continue growing, which it has done historically. So investors will want to look at past and future acquisitions in this case. But with this comes debt, so make sure ATD stock also has the debt levels and capital structure to manage the company and acquisitions long term.

Then there’s the numbers. ATD stock would need to demonstrate that it will continue seeing revenue grow. Part of this would come down to same-store sales growth, seeing that stores are growing even without the help of acquisitions. Furthermore, look at free cash flow to support debt, dividends, and buybacks as well as profit margins to understand its efficiency in converting sales into profit.

Where ATD stock fits in

So, now we’ve gone over what’s important: how does ATD stock stack up? The company currently holds a $80.3 billion market cap as of writing, with shares maintaining stability in the first bit of this year. Earnings are around the corner, but we can still look at past earnings to paint a bit of a picture.

ATD stock reported its second quarter and saw net earnings grow slightly to $819.2 million for the quarter. Same-store merchandise sales were down in the United States and Europe from lower cigarette sales, with fuel also falling.

Even so, ATD stock closed an acquisition for 112 convenience stores across the U.S. and will acquire gas stations across Europe. Overall, the company faced some economic pressure and challenges but managed the costs effectively and even improved its financial position.

So, is it a buy?

Honestly, I like looking at this quarter when times are tough to decide whether this stock is a solid buy or not. And in the case of ATD stock, I’m bullish on the future. While sales are down, that comes with the territory of being in this downturn. That being said, it still has enough cash to not only keep afloat, but indeed expand!

Meanwhile, investors can get a deal when looking at valuations. The stock trades at 19.81 times earnings, with shares still up 37% in the last year. It holds a 0.71% dividend yield, higher than its 0.69% average over the last five years. The payout ratio is sturdy at 13%. With just 79% of equity needed to pay all debts, the company looks financially sound.

So, is it a buy? In my opinion, absolutely — especially before earnings could demonstrate more positivity about the future.

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 Amy Legate-Wolfe 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.

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