Is it Too Late to Buy ATD Stock?

Here’s why I think Alimentation Couche-Tard (TSX:ATD) stock could be a key winner during this current market cycle for long-term investors.

| More on:
stock analysis

Image source: Getty Images

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.

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 Chris MacDonald 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.

More on Investing

Target. Stand out from the crowd
Stocks for Beginners

2 No-Brainer Stocks to Buy With $7,000

Got some cash to fill up your TFSA? Here are two stocks that look like good buys on the recent…

Read more »

Path to retirement
Retirement

RRSP Must-Haves: 2 Canadian Stocks to Secure Your Retirement

Future retirees can use the RRSP to save for retirement and be financially secure with the help of a Dividend…

Read more »

Digital background depicting innovative technologies in (AI) artificial systems, neural interfaces and internet machine learning technologies
Investing

2 Utility Stocks That Could Help Energize the AI Boom

Canadian Utilities (TSX:CU) and another great utility stock could indirectly benefit from the rise of AI.

Read more »

top TSX stocks to buy
Stocks for Beginners

3 Stocks That Can Help You to Get Richer in 2024

These three stocks have already proven their worth this year, but are set to continue climbing in 2024 and even…

Read more »

Woman has an idea
Dividend Stocks

3 No-Brainer Best Dividend Stocks in Canada to Buy With $500 Right Now

Are you craving more cash flow? $500 in one of these best dividend stocks in Canada might deliver a slice…

Read more »

Canadian energy stocks are rising with oil prices
Dividend Stocks

5 Stocks Whose Dividends Just Keep Growing

Stocks like Enbridge and Fortis are growing their dividends for decades, and returning higher cash to their shareholders.

Read more »

Man considering whether to sell or buy
Tech Stocks

BlackBerry Stock Is Down 20%: Buy the Dip or Call It a Pass?

BlackBerry stock has seen a series of 20% monthly dips since December 2023. Should you buy the dip or call…

Read more »

Happy family father of mother and child daughter launch a kite on nature at sunset
Investing

3 High-Flying TSX Stocks That Could Keep On Climbing

These high-flying TSX growth stocks certainly have the potential for more upside over the long term, if secular growth trends…

Read more »