Alimentation Couche-Tard Inc. (TSX:ATD) is a leader in the convenience store sector. It has grown into a global behemoth, with over 16,000 sites and more than $69 billion in annual revenue. After a whirlwind rise to the top, Alimentation Couche-Tard stock has hit a little bit of a roadblock.
Down slightly from early 2024 highs, can the stock continue to rise in 2025?
Growth stalls in 2024
Alimentation Couche-Tard’s growth over the last 10-plus years has been nothing short of phenomenal. In fact, in this time period, 2023 revenue came in at $71.9 billion compared to 2013 revenue of $35.5 billion. That’s more than double, and it represents a compound annual growth rate (CAGR) of 7.3%. Also, 2023 net earnings were more than $3 billion, compared to $573 million in 2013. That’s an increase of 424% and it represents a CAGR of 18%.
So how did the company achieve this growth? Well, the strategy has been one of aggressive global acquisitions, all while maintaining its impressive return profile. In fact, the company has consistently provided shareholders with a return on equity of roughly 20% in the last 10 years.
Not surprisingly, Alimentation Couche-Tard’s stock has reflected this outperformance and has risen 263% in the last 10 years.
Plans for 2025
As I mentioned earlier in this article, the company is facing some headwinds lately. These challenges reflect the fact that consumers are watching their spending. Basically, spending on discretionary items are taking a big hit. This macro environment has been the driving force behind the recent decline in same-store sales at Alimentation Couche-Tard.
However, the retailer is arguably one of the defensive ones in the retail space, as the convenience store model is not one that is overly reliant on big discretionary spending. So, the company is continuing to focus on enhancing efficiencies through these difficulties, and while store growth is slowing, it is by no means coming to a halt.
Alimentation Couche-Tard stock: High returns justify valuation (kind of)
I’d like to take a minute to discuss Alimentation Couche-Tard stock’s valuation. Trading at 27 times this year’s expected earnings, we can say that it’s on the high side. But as a counter to that, we can point to the company’s strong returns and strong growth prospects. In fact, the company continues to acquire and gain market share as it takes advantage of its leadership position in the industry.
The outlook for Alimentation Couch-Tard the company, and for Alimentation Couche-Tard the stock, are pretty similar, in my view. I think they are both due for a breather, which has already begun. And I think that in 2025, this will be the dominating story – a breather after years of strong growth.
The long-term story is different, however. In the long term, I think Alimentation Couche-Tard will continue to expand across the globe, while continuing to provide shareholders with solid returns from this high margin, defensive business. In fact, the company is currently in discussions with Japan’s Seven and i Holdings, the owner of the 7-Eleven franchise. This would catapult Alimentation Couche-Tard to greater dominance in the convenience store industry.
