Alimentation Couche-Tard (TSX:ATD.B), a major convenience store and gas station chain, is showing signs of recovery in the post-pandemic scenario. The recent earnings reports indicate that it is well positioned to be a pandemic recovery play. Couche-Tard’s strong financial outlook makes its stock appear cheap relative to its growth potential.
It is a company that has excellent long-term potential. Here’s why investors might have more reasons to come back to the table on Couche-Tard stock.
Multiple factors driving Couche-Tard’s growth
Alimentation Couche-Tard is one of the six Canadian companies on RBC Dominion Securities’s Top 30 Global Ideas list for the third quarter of 2021.
According to analyst Irene Nattel, there are various factors to consider with respect to Couche-Tard’s growth. These include
- Fascinating growth momentum due to a highly focused and data-driven approach towards promotional and merchandising strategies;
- Acquisition potential to boost the company’s long-term growth;
- Sharing of essential company practices among various countries with the aim to boost sales and productivity; and
- New store openings and subsequent increased economic activity
These strategies have allowed Couche-Tard to perform well over the long term. Indeed, should these factors remain in place, I think there’s tonnes of upside left on the table for investors.
Couche-Tard currently has a “moderate buy” rating with an average target on the Street at $53.34. This implies upside of nearly 10% from here, though I think these analyst targets could continue to be revised higher moving forward.
Bottom line
Couche-Tard is a stock that has failed to perform well during the pandemic for obvious reasons. As driving volumes diminished, so too did Couche-Tard’s convenience store and gasoline sales. However, the obvious recovery thesis with this stock remains solid.
As a pandemic reopening play, Couche-Tard remains a top pick of mine. I think this company’s underlying business model is strong and will continue to allow investors to benefit over the long-term. Accordingly, patient investors who are willing to wait out some near-term pain could see some long-term gains in the years to come.
Indeed, this is a stock mainly oriented toward investors with a long-term investing time horizon. The company’s growth-by-acquisition model remains intact. Accordingly, I see tonnes of potential over the long term for Couche-Tard to continue to generate higher returns for investors both organically as well as through the company’s M&A activity.
Right now, Couche-Tard’s valuation of only 16 times earnings relative to its growth potential is extremely enticing. Investors seeking long-term growth can’t go wrong with this undervalued gem right now.
