Alimentation Couche-Tard (TSX: ATD) is a name recognizable to most Canadians and investors. Unfortunately, the stock made headlines this week for another reason by missing earnings expectations. But does this mean investors should look elsewhere for growth or continue to buy Alimentation Couche-Tard stock?
Let’s try to answer that question.
The name that everyone knows, and the stock you will love
For those unfamiliar with the stock, Alimentation Couche-Tard is one of the largest gas station and convenience store retailers on the planet. The company boasts well over 14,000 locations in over two dozen countries around the world.
If you’re contemplating whether to buy Alimentation Couche-Tard stock, you’re not alone. For over a decade, Alimentation Couche-Tard has been one of the best-performing stocks on the market.
Part of the reason for that is the necessary yet often dismissive nature of its business.
In short, gas stations and by extension, their adjoining convenience stores are not destinations we go to, but rather interim stops we make on the way to somewhere else. This could be fueling up before going out for the evening or grabbing some milk and eggs on the way home.
That key point makes Couche-Tard a defensive part of the market that isn’t going anywhere. Additionally, Couche-Tard has become a master at identifying and selling those goods.
Another key point is Couche-Tard’s appetite for expansion. The company has flawlessly executed a series of well-executed acquisitions over the years. And more importantly, Couche-Tard’s superb management team has looked to integrate the best parts of each acquisition into the business.
Let’s get on with the not-so-good recent news
Even with a largely defensive stock that has massive growth appeal like Couche-Tard, there is always some risk. And Couche-Tard’s recently reported Q3 results were in a word, underwhelming. This has led some to question whether or not to buy Alimentation Couche-Tard stock.
Specifically, revenue came in 2.2% lower over the same period last year, at $US19.6 billion. That dip followed on with net income coming in 16% lower to US$623.4 million, while on a per share basis the company came in US$0.08 lower to US$0.65 per share.
Part of the reason for the dip, at least according to CEO Brian Hannasch, is the trade-down behaviour we’re seeing in other parts of the market. What this means is that customers, particularly lower-income patrons who are already strained by the added volatility of rising costs, are being forced to trade-down to more affordable options.
As a result of the not-so-good results, Couche Tard has seen its stock price shed 8% this week.
But there is a light at the end of the tunnel.
Despite the mammoth recent drop in the stock price, it still trades at an attractive P/E of just 18. Furthermore, the company still forecasts strong growth over the next several years, forecasting annual growth of 7%.
And there’s also Couche-Tard’s growing European business. Specifically, the company completed a whopping $3.1 billion euro deal for the European assets of TotalEnergies last year.
This included retail locations in Germany and the Netherlands, as well as a significant share of sites in Belgium and Luxembourg. Overall, the deal increased the presence of Couche-Tard in the competitive European market by a whopping 80%.
For investors contemplating whether to buy Alimentation Couche-Tard stock, that’s a pretty strong case.
Buy Alimentation Couche-Tard stock for something extra
Apart from that long-term growth potential and overall appeal, Couche-Tard can tease prospective investors with one more point – a dividend.
The company offers investors a quarterly dividend, which currently carries a paltry yield of just 0.86%. That’s hardly a reason which will top the scales to buy Alimentation Couche-Tard stock, but it is covered and growing.
It’s just yet one more item to add to a growing list of reasons to consider Couche-Tard.
In my opinion, investors should buy Alimentation Couche-Tard stock as part of a larger, well-diversified portfolio.
