There are several reasons to consider a promising retail stock like Alimentation Couche-Tard (TSX:ATD). Each reason has its own intrinsic and comparative weight, and they come into play based on how you consider this stock.
If you are looking into it as a standalone investment and whether or not you should buy it, the emphasis may be on a different set of characteristics compared to when you are considering it against another investment.
Here are the three most compelling reasons in either scenario:
Its footprint
Alimentation Couche-Tard is a retail giant with about 16,800 locations in 29 countries. Over 13,000 of these locations also offer fuel. This classic combination of fuel and retail has been relevant for decades and may remain so for several decades.
It has reached this magnitude through strategic acquisitions, the most recent of which is the acquisition of 2,175 retail assets in Germany and Benelux. The entire network serves roughly 8.7 million customers on a daily basis.
This impressive international presence also opens doors for further opportunities for the company. If it already has a presence in a country and develops/retains the existing consumer base at a healthy level, it’s well-positioned to expand that chain or make other acquisitions in that region.
An acquisition
The company is working on an acquisition that would significantly increase its footprint — the owner of the 7-Eleven chain called Seven & I Holdings. It’s a Japanese company that Alimentation is proposing to buy for US$47 billion. There are about 13,000 7-Eleven stores in the U.S. and Canada alone. The parent company has 85,800 stores around the globe under different banners.
If the company manages to complete this acquisition, it will jump several ranks to become one of the largest retail chains in the world.
Performance history
The underlying company is solid, and the stock is just as impressive, at least usually. It’s currently coming out of a bear market phase, and its performance in 2024 has been relatively shaky. But if we look back further, the performance is quite impressive.
The stock rose by about 85% in the last five years and 286% in the last 10 years. The company also pays dividends, but the yield usually needs to be higher to be a significant deciding factor in this investment.
Foolish takeaway
The stock’s performance and the underlying business are both compelling reasons to buy this stock, but if you are looking for something more time relevant, two additional reasons are its discount and valuation.
The stock is currently trading at a 10% discount from its recent peak and has a price-to-earnings ratio of roughly 20. It’s not undervalued per se, but considering its performance history, this valuation is quite attractive.
