Shares of Alimentation Couche-Tard (TSX:ATD) have been on the mend recently after a sudden correction sent them down close to 14% from their highs. Indeed, the correction wasn’t due to a brutal quarter or any big change in the longer-term growth narrative. Rather, ATD stock was simply overbought, overheated, and perhaps slightly overvalued after surging close to 10% in February.
Whenever a stock starts experiencing such a drastic uptick in momentum, you should brace for a quick correction. Now that the pullback is in the books, investors may wonder if the stock’s at a decent entry point at around $82 per share. Undoubtedly, shares still haven’t recovered from their March correction. But shares look attractive for investors looking to hold for the next five years now that they’re back on the longer-term trend line.
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Couche-Tard stock: Worth the premium multiple as macro conditions recover
Of course, the technical picture is just one tiny part of the story. Regardless, if you’re looking for a relatively cheap investment to build wealth over the next five years, shares of ATD may very well fit the bill, even if the price-to-earnings (P/E) ratio is on the high side at 21.4 times at the time of writing. I view the slightly swollen multiple as well worth paying, especially if you’re in the belief that the current rate-cutting cycle will be a boon for the economy over the next few years.
If inflation falls to or below 1-2% and the average Canadian consumer no longer has to worry about hefty interest payments on their debts, perhaps there will be more pocket money to spend on beef jerky, Polar Pop, a bag of chips, fresh produce, and pizza at the local Circle K (or Couche-Tard as it’s referred to in the Quebec market).
It’s not just improving consumer health that should have investors reaching for ATD stock as it looks to bounce back from its spring shower, though. Couche-Tard’s balance sheet remains in a good spot going into midsummer. Perhaps it’s strong enough to go on another one of its value—and growth-driving acquisition sprees.
Indeed, buying a less-than-efficient gas station and convenience store operator in the North American or European market makes a lot of sense right now, especially as some feel the pinch from hard-hit consumers inclined to cut back on merchandise during their convenience store visits.
How will Couche-Tard look under a new CEO?
Of course, Couche-Tard could surprise us all with its next big acquisitive move under its incoming new chief executive officer (CEO), Alex Miller, who will replace Brian Hannasch once he retires in a few months.
Couche-Tard was a massive TSX-beating winner during the Hannasch era. Under Miller, I think investors should expect more of the same growth. Perhaps Miller could take Couche-Tard’s growth into overdrive as he looks to bring out the best in the firm under his reign.
Miller has been pivotal in the company’s “One-Touch” remodel effort, which sought to enhance food-related margins while adding to the experiential factor. In a way, Miller is all about driving operating efficiencies through the roof while bringing in more foot traffic. Given his wealth of experience as an efficient operator, I expect Couche-Tard could become a star earnings grower a few years after he’s had a chance to work his magic.
The Bottom Line on Couche-Tard
In the next five years, I expect Couche-Tard stock to be much higher than it is today. I’m a big fan of incoming CEO Alex Miller and his track record of driving efficiency. With so much cash on the balance sheet, the firm has plenty of options to keep growing via mergers and acquisitions as the North American retail sector looks to bounce back after a hectic few quarters.
