Here Are 3 Phenomenal Reasons to Buy Alimentation Couche-Tard Stock Right Now

Alimentation Couche-Tard Inc (TSX:ATD) stock is in the midst of a European expansion.

| More on:
Pumps await a car for fueling at a gas and diesel station.

Source: Getty Images

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.

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.

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 Andrew Button 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 Dividend Stocks

Cogs turning against each other
Dividend Stocks

How Interest Rate Cuts Affect REITs

Now is a good time to investigate Canadian REITs and take a position in the form of stocks or exchange…

Read more »

Simple life style relaxation with Asian working business woman healthy lifestyle take it easy resting in comfort hotel or home living room having free time with peace of mind and self health balance
Dividend Stocks

3 Affordable Passive-Income Stocks That Pay Monthly

These three monthly-paying dividend stocks could boost your passive income.

Read more »

alcohol
Dividend Stocks

Retirees: 2 High-Yield Dividend Stocks to Buy in July

Retirees can rely on these dividend stocks for steady passive income and high yields.

Read more »

A Canada Pension Plan Statement of Contributions with a 100 dollar banknote and dollar coins.
Dividend Stocks

CPP Benefits Not Enough? This Top Dividend Stock Can Help Fund Your Retirement

Dividend stocks like Fortis Inc (TSX:FTS) have funded many a retirement.

Read more »

A steel grain silo storage tank with solar panel in a yellow canola field in bloom in Alberta, Canada.
Dividend Stocks

The Ultimate TSX Stock to Buy With $1,000 Right Now

Once at triple-digit prices, Nutrien stock (TSX:NTR) now offers a steal of a deal for long-term growth as well as…

Read more »

Paper Canadian currency of various denominations
Dividend Stocks

Set and Forget: 1 Dividend Stock That Could Create $1,000 in Tax-Free Passive Income in 10 Years

Enbridge operates a low-risk business that has allowed the TSX dividend giant to raise its payout by 10% annually since…

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

Passive Income: How to Make $106 Per Month Tax Free

Holding quality, high-yield dividend stocks such as Freehold Royalties in a TFSA can help you earn tax-free income for life.

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

How to Earn a TFSA Paycheque Every Month and Pay No Taxes on it

Stocks like First National Financial (TSX:FN) pay you monthly. You can also earn monthly dividends through portfolio diversification.

Read more »