Alimentation Couche-Tard (TSX:ATD) operates a network of gas stations and convenience stores in North America, Scandinavia, Poland, Ireland, the Baltics, and Russia. Over the last two decades, the company has delivered 20% annualized returns of north and 18% per year for the past 10 years. Hence, any investor will benefit from such returns.
However, the question is whether it is too late to invest in this growth gem. Let’s dive into why I don’t think that’s the case at all.
Solid business model
Among the key factors investors need to hone in on when it comes to any company is its business model and whether this model will stand the test of time. No matter what economic cycle we’re in, folks need to commute and fill up on gas, and convenience stores will remain a staple for many. There is some cyclicality to Couche-Tard’s business (as we saw with the pandemic). But so long as we’re all not locked down again for a couple of years, this is a company that should continue to see consistent growth.
Couche-Tard’s growth has been driven both by organic same-store sales growth as well as via acquisitions. In fact, the company has done a great job of consolidating a rather fragmented sector. Thus, the ability to finance future transactions may be the only hurdle to the company’s growth trajectory. But with a rock-solid balance sheet, this isn’t a pressing concern right now. And if interest rates drop, that’s another feather in the cap of the company’s management team and investors as well.
Strong returns bode well for ATD stock
The other key factor I continue to pound the table on when it comes to Couche-Tard is that this company performs very consistently. Despite recent turbulence tied to the pandemic, the company has posted strong revenue and earnings growth in a very stable fashion over time.
In fact, over the past 10 years, the company has seen a compound annual growth rate of more than 22% in terms of its adjusted earnings. This is complemented by a 23% return on equity over the past five years. When these numbers align, that’s what investors want to see.
The company has directed around half of its cash flows into capital spending. Thus, this is a company that’s reinvesting in its core business. And when a business returns 23% on its invested capital, that’s a great thing for investors. The last thing most investors will want is for the company to raise its dividend distribution, though that has happened in recent years.
Bottom line
Until we all stop driving and visiting our favorite Couche-Tard banner convenience store, this is a company that’s poised to continue providing growth for investors. Yes, ATD stock currently trades near its all-time high. And at 19 times earnings, it’s more expensive than it’s been in some time.
The thing is, I think ATD stock is relatively fairly valued here. Accordingly, those with a long-term investing time horizon can’t go wrong dollar-cost-averaging into this name. At least, that’s my view.
