Alimentation Couche-Tard (TSX:ATD) is a top-tier operator within the convenience store and fuel station industries. The company’s portfolio includes 16,800 convenience stores operating under its well-performing brand name, Circle K, which includes its retail convenience and mainland diversified segment.
However, some questions have arisen about its recent stock performance and ambitious growth targets, bringing about uncertainty about whether Couche-Tard remains an attractive investment.
Let’s dive into whether ATD stock is a buy right now or if investors may want to take a more cautious approach with this stock, given its recent performance.
Let’s keep these returns in context
Couche-Tard has been a notable outperformer in recent years. The company’s stock price surged more than 150% over a four-year period to the first quarter (Q1) of 2024, despite stagnating a bit in recent quarters. Investors appear to have grown a bit more cautious about the company’s upside potential, given the uncertain economic climate and the extent of the company’s aggressive expansion plans (particularly in Asia).
Investors will note that Couche-Tard has made a bid to acquire the parent company of 7-11, though that deal appears unlikely to go through. There’s a competing leveraged buyout bid that appears more likely to go through, diminishing the company’s prospects for continued expansion via large acquisitions in the marketplace.
Given Couche-Tard’s size, larger and larger deals will need to be done to move the needle for the company. While Couche-Tard’s long-term business model of acquiring various chains and rolling them under its banners has been successful, the fact that the company is reaching for bigger and bigger deals may cause some consternation among investors. These deals have, in the past, at least.
Financial stability
That said, I’d argue that Couche-Tard is one company with the financial ability to make such deals happen. With a rock-solid management team that knows what it’s doing when it comes to improving the performance of retail and convenience store chains, the replicability of its business model makes this stock attractive to growth investors.
Again, the question will be whether the company will be able to make deals that are large enough to move the needle. But with a strong balance sheet and a reasonable dividend yield, this is a stock I think provides more than just growth to long-term investors seeking defensiveness and relative value in this market.
Bottom line
Couche-Tard is a company I think investors can own for the very long term. Indeed, ATD stock is one that’s been on my watch list for some time, and while it’s a company I’ve been pounding the table on for a long time, it’s one I haven’t yet pulled the trigger on.
That may change should we see the recent selloff continue and shares trend toward a 15 times earnings multiple (where I’d like to pick up shares personally).
We’ll see — this is a stock that trades at a premium for a reason. But it’s one I think remains a buy for those with a long-term investing time horizon.
