This Consumer Staple Growth Stock Soared 58% Over the Last Year: Here’s Why it’s Headed Even Higher

Why Alimentation Couche-Tard Inc. (TSX:ATD.B) could be heading past $100 by year-end.

Alimentation Couche-Tard (TSX:ATD.B) has been roaring lately with shares now up nearly 60% over the past year. The white-hot growth stock is showing no signs of slowing down, and since recent market-wide fears have had a negligible impact on the upward trajectory of shares, I think there are still plenty of reasons for growth-savvy investors to consider the name as it continues soaring to new all-time highs.

A hot stock that keeps getting hotter

While I’m not a big fan of chasing hot stocks based solely on momentum, there are plenty of catalysts that could keep shares (and earnings) moving higher through the end of the year. Even after the incredible run, Couche-Tard stock still isn’t what you’d consider a ridiculously expensive stock, especially when you consider the high magnitude of predictable, low-beta growth that you’re getting.

With plenty of forward-looking growth left in the tank, I think Couche-Tard is a stock that warrants a much higher multiple than 25 times trailing earnings. Unlike most other sexy growth stocks, Couche-Tard has the earnings to back itself up and once management pulls the trigger on its next big deal, the stock could rip past the $100 mark, because investors know that every deal creates tremendous value for long-term shareholders.

The seasoned management team is all about driving synergies through the roof, and if a potential deal doesn’t provide high synergies relative to the integration risks being taken on, CEO Brian Hannasch and company aren’t afraid to walk away, as there are a tonne of other potential takeover targets in the highly fragmented global convenience store scene.

Looking for value in the land down under?

Couche-Tard’s debt levels have been chipped away at over the past year, and with the debt-to-equity ratio now down to 0.69 as of the latest quarter, the company has more financial flexibility and could be ready to make another big deal (or series of smaller deals).

Recent rumours in the Australian media noted that Australia-based fuel supplier and convenience store chain Caltex might be up for sale.

Seeing as Couche-Tard has previously expressed interest in expanding its footprint in the Asian Pacific markets, I find it likely that Couche-Tard could be a top candidate to scoop up all (or a good portion) of Caltex’s retail locations. In addition, there have been reports that Couche-Tard’s management team has been seen in Australia, likely on their way to discuss a potential deal with Caltex.

Caltex has struggled with lower fuel margins and poor profitability numbers of late. Seeing as there’s a bit of baggage, a Caltex deal probably wouldn’t come with a hefty price tag. TD Securities analysts Michael Van Aelst and Evan Frantzeskos speculate that if a deal were to be made for Caltex’s retail segment, that the price could be around eight times sustainable EBITDA.

That’s a pretty good price for Couche-Tard, and with exceptional stewards running the show, such a Caltex deal could not only provide ample synergy opportunities but a solid foundation for an expansion in the land down under.

Foolish takeaway

Couche-Tard is hot, and it’s going to get even hotter once management becomes hungry for its next big acquisition. With nearly 800 convenience stores under the Caltex banner, Couche-Tard may have found its next match and should a deal be inked; I suspect Couche-Tard shares could be on a sustained rally to $100.

Stay hungry. Stay Foolish.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Joey Frenette owns shares of ALIMENTATION COUCHE-TARD INC. Couche-Tard is a recommendation of Stock Advisor Canada.

More on Stocks for Beginners

Paper Canadian currency of various denominations
Stocks for Beginners

Here Are My Top 3 Stable Stocks to Buy Now

Stability isn't always exciting, but when you look back in 20 years, your portfolio will show you why these stable…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Dividend Stocks

Here’s the Average RRSP Balance at Age 20 in Canada

It may seem like a long way away, but starting early and investing often can make retirement saving a breeze.

Read more »

Doctor talking to a patient in the corridor of a hospital.
Dividend Stocks

CRA Money: The Best Benefit to Claim in 2024

This benefit is one of the most broad ones you can claim from the CRA, yet many of us are…

Read more »

a man relaxes with his feet on a pile of books
Energy Stocks

7.9% Dividend Yield? I’m Buying This TSX Passive-Income Stock in Bulk!

This passive-income stock is a strong buy for its dividend, especially for its consistency and growth thanks to the Keystone…

Read more »

customer uses bank ATM
Bank Stocks

Canada’s Big Bank Stocks: How to Find the Best One for You?

Considering an investment in Canada's big bank stocks? Here's a look at some of the best options to buy right…

Read more »

Start line on the highway
Stocks for Beginners

3 TSX Stocks to Hold for Long-Term Success

If you want some stocks for long-term success, here are three to look at holding.

Read more »

resting in a hammock with eyes closed
Stocks for Beginners

Beginning Investors: 1 Simple Strategy for a Lifetime of Security

These two ETFs focus on blue-chip Canadian and U.S. stocks with a history of growing dividends.

Read more »

A plant grows from coins.
Stocks for Beginners

3 Growth Stocks to Buy With $500 and Hold Forever

Growth stocks aren't all bad. In fact, many can be the sign of even more great news to come! Consider…

Read more »