Alimentation Couche-Tard (TSX:ATD) is Canada’s biggest gas station company. It operates the well-known Circle-K gas station chain, which it bought from ConocoPhillips in the 2000s. Originally a U.S. chain, Alimentation Couche-Tard brought Circle-K to Canada, eventually expanding its presence to 800 locations nationwide. Circle-K is most prominent in Quebec and the Atlantic provinces.
Investors who bought Circle K since 2010 have fared well. It’s up more than 1,000% in that time frame. This year, ATD is taking a breather, as its most recent quarter showed declining fuel sales revenue. That’s most likely a temporary setback, making 2024’s ATD price dip an attractive buy opportunity.
In this article, I will explore three phenomenal reasons to buy Alimentation Couche-Tard stock in 2024.
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Modest valuation
One thing that ATD stock has going for it right now is a modest valuation. At today’s prices, the stock trades at
- 20 times earnings;
- 0.79 times sales;
- Four times book value; and
- 11.3 times cash flow.
This is certainly not deep-value territory, but it’s relatively cheap by the standards of the markets these days. For comparison, the S&P 500 trades at a 24 weighted average price-to-earnings (P/E) ratio.
High oil prices
Another thing that ATD has going for it right now is high oil prices. Circle-K and Couche-Tard operate both as gas stations and as convenience stores. About 40% of Alimentation’s earnings and 60% of its revenue come from fuel sales.
Oil prices are relatively high these days. A barrel of West Texas Intermediate (WTI) crude oil goes for about $83. That’s relatively expensive by the standards of the last 10 years, which saw oil prices average about $60. At one point during the March 2020 COVID-19 lockdowns, WTI crude futures went negative due to the pandemic killing demand for travel. So, today’s $83 price point is a fairly healthy one. Goods like gasoline and diesel are highly correlated with the commodity used to produce them, so ATD’s fuel revenue will probably pick up.
Ongoing expansion
Another thing that ATD has going for it right now is its ongoing expansion. Alimentation Couche-Tard’s management is currently expanding its chains in Canada, the U.S. and elsewhere. The company re-invests its profits in order to expand, which spares it the fate of a heavy debt load.
Currently, Alimentation Couche-Tard has a 1.1 debt-to-equity ratio, which is excellent for a company that has been expanding rapidly for over a decade. That’s all due to the “reinvested earnings” approach the company has taken. One disadvantage of this strategy is a low dividend yield (it’s only 0.81%), but when you have a compounder like this on your hands, you probably aren’t thinking about the dividend much.
Foolish takeaway
Is Alimentation Couche-Tard a good value today? I’d say it’s a reasonably good one. I don’t own any ATD stock in my portfolio, but I’d be comfortable owning it. It’s reasonably cheap, its acquisition strategy is sound, and fuel prices are high. It appears likely that ATD stock will reverse its current downturn in the months and/or years ahead.
