The S&P/Toronto Stock Exchange (TSX) Composite Index has been very bullish for the past year. In that period, the TSX Index has risen 29%, compared to just 13.5% for the S&P 500. If we include dividends, the TSX has beaten the S&P 500 by an even wider margin, as the TSX has nearly double the S&P 500’s dividend yield.
Although the above might sound like good news – and is good news for those who invested one year ago – it is actually bad news for those just starting to invest fresh funds today. The more an asset increases in price, the greater the odds that it will fall in price going forward.
So, the TSX is not as good an investment today as it was a year ago. The last year’s bullishness in banks and energy stocks, and comparative weakness in tech, has inflated the price of the Canadian stock market. That’s a tough reality for those who are just beginning to invest in the Canadian markets this year. However, there are still segments of the markets, as well as individual stocks, that remain cheap. In this article, I explore one Canadian stock down 3% from its all-time high that has plenty of room to run from here.
Alimentation Couche-Tard
Alimentation Couche-Tard Inc (TSX:ATD) is a Canadian convenience store company whose stores double as gas stations. Its chains include Couche-Tard, Circle-K, and Ingo. They stretch all across Canada, the United States, and even much of Europe. In Canada, Alimentation has a commanding market share in the gas station business.
Why ATD stock is down
There are two main reasons why ATD stock remains down from its 2024 high:
- The company put out a string of disappointing earnings releases in 2024 and 2025.
- The company made a very generous offer for 7/11, which many investors thought was risky and shouldn’t have been made.
The first reason behind ATD’s poor two-year performance is clear enough. The second one requires a little explanation. In 2024, Alimentation Couche-Tard offered 7 & I, the owner of 7/11, $47 billion to acquire all its shares. The deal was worth roughly 15 times what ATD had in balance sheet cash at the time, and about 2 times what the company had in common equity.
Because the 7/11 offer was so much more than what ATD actually owned, the deal would have taken extreme amounts of leverage for ATD to close it. This really worried investors. Over the years, ATD made a name for itself by following a prudent acquisition strategy, bootstrapping deals from earnings rather than borrowing huge sums of money. This strategy resulted in ATD growing more than 2,000% from 2010 to early 2026. The 7/11 deal appeared to fly in the face of what made ATD great in the first place, being at a premium to the Japanese markets 7/11 was based in and requiring heaps of debt. Understandably, investors started selling ATD stock in size when the offer was announced.
The biggest risk factor has been successfully averted
Fortunately, the biggest risk factor that plagued ATD was eventually thwarted: the government of Japan eventually refused to allow the ATD/7 & I merger to go ahead. ATD withdrew its bid shortly afterward. With the merger headwind no longer in the picture, investors now have a stable company with a pristine balance sheet, low debt, and high margins to invest in. At 21.8 times earnings, it appears to be a decent value.
