Alimentation Couche-Tard (TSX:ATD) has been one of the best performing stocks in Canada over the past two decades. Since 2004, the stock has risen 3,587%. That is a 19.7% compounded annual growth rate.
Had you reinvested the dividends collected over the past 20 years, your investment would be up 4,328%. A $10,000 investment would be worth well over $450,000!
Alimentation Couche-Tard has delivered exceptional long-term returns
The company has been able to deliver excellent results for shareholders. This indicates a very high-quality company.
Couche-Tard’s performance is especially impressive when you consider that it owns and operates convenience stores and gas stations. These are generally highly competitive businesses with relatively low margins.
However, Couche-Tard has been able to consolidate a very fragmented industry. It buys up both small and large portfolios of convenience stores, gas stations, and car washes.
It can generally buy these at attractive valuations. It then uses its brand power, economies of scale, strong distribution network, and wide product assortment to expand sales and increase margins.
A big M&A playbook
Today, Couche-Tard has a network of 16,715 stores across Canada, the U.S., Northern Europe, and Asia. The U.S. is its largest market, but its presence in Europe just expanded considerably after it acquired a large network in Germany, the Netherlands, and Belgium.
The company recently indicated that the M&A (mergers and acquisitions) environment is improving, and valuations have become more attractive. As a result, investors can look forward to some potential big moves in 2024 and beyond.
Great financial results
Over the past 10 years, Couche-Tard has grown earnings per share (EPS) by 406% (or 18% compounded annually). EBITDA (earnings before interest, tax, depreciation, and amortization) has compounded by a slightly higher rate than EPS. Free cash flow per share has grown by 210% (or 12% compounded annually).
The company has used a slightly depressed valuation to aggressively buy back stock. Since 2020, it has eaten up about 13%. Likewise, it has aggressively increased its dividend per share by a 25%-plus compounded rate over the past 10 years. This company has a small dividend yield of 0.93%, but it has grown its dividend at an elevated rate.
Why has performance lagged in 2024?
So, you might be wondering: If Alimentation Couche-Tard is such a great business, why is the stock down 3% year to date and nearly 10% in the past month?
In its past couple of quarters, the company has been hit by slowing economic headwinds. Consumers are a bit more strapped. Demand for alcohol, cigarettes, and discretionary foods (like junk food) has moderated. The stock market got a bit jittery after its recent quarterly results and the stock has pulled back.
Is Alimentation Couche-Tard a buy today?
While this may be a short-term issue for the next few quarters, it appears to be largely transitory. Gas prices have risen, so it should get the benefit of higher fuel margins this summer.
Likewise, it is bringing on its large European acquisition. That is expected to accrete earnings growth in late 2024 and into 2025. The company continues to target doubling its earnings over the next four to five years. Couche-Tard has a strong record of execution, so it has a good chance of it hitting its targets.
In the meantime, you can buy ATD stock at about 17.5 times earnings and a free cash flow yield of 5.5%. It is not the cheapest this stock has traded for, but it is a fair valuation given its solid growth outlook.
For a well-managed, stable, and resilient business, Alimentation Couche-Tard looks like a good stock to add on the recent share weakness.
