While ups and downs are a natural part of stock markets, some stocks develop a reputation for consistency. Unnatural patterns in such stocks, e.g., growth after years of slumps or a hard dip after years of consistent growth, tend to stand out.
However, it’s not the trend itself that might cause the investor to make a buy-and-sell decision; it is the reasons behind it. If it’s market-related and all the fundamental strengths of the stock still stand, buying a consistent stock when it dips can be a smart investment move. In contrast, investors might be wary of buying it when it’s something related to the stock/business itself.
Alimentation Couche-Tard (TSX:ATD) is currently trading at over a 9% discount to its recent peak, and even though the primary catalyst behind the dip was missed earnings, it might still be worth considering in April.
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The business model and long-term prospects
As one of the largest convenience chain stores in Canada, with a strong presence in stable North American and European markets and emerging Asian markets, Alimentation is relatively secure.
Although its massive geographic footprint may incur additional expenses, it also gives the company ample growth opportunities. While not inherently safe from the retail sector’s e-commerce revolution, the convenience store business model has shown exceptional resilience so far.
With the right approach to blending e-commerce with the traditional retail model and leveraging its footprint, Alimentation can continue growing steadily. The current earnings drop is most likely a result of the changing spending habits of consumers across global markets.
The interest rates and inflation may turn a corner for the better, which will be reflected in Alimentation’s future earnings reports.
The stock
At its maximum, the drop in Alimentation stock was around 14%, and the stock is already recovering. One good thing that came out of this discount was the valuation, which reached a relatively healthy level, although we can’t count alimentation among undervalued stocks. As for the performance, the five-year returns are still quite close to 100%, even with the current discount taken into account.
So, if the stock recovers and keeps growing at its current pace, it can double your capital in the next five years. That’s a powerful pace for a retail giant and quite realistic considering its historical growth.
Foolish takeaway
The current discount is shrinking quite rapidly, and the stock may end up surpassing its former peak in a few weeks or a few months at most if it continues to recover this way. However, if the next earnings miss the mark or miss it by a significant margin, we may see a more brutal bear market phase connected to this stock.
