For more than a decade now, since its expansion into Europe, Alimentation Couche-Tard (TSX:ATD) has been one of the best and most consistent growth stocks on the TSX.
Over the last 10 years, Couche-Tard stock has earned investors a total return of more than 530%. That’s an unbelievably impressive compounded annual growth rate (CAGR) of 20.3% per year. Furthermore, Couche-Tard stock significantly outpaced the TSX over that stretch, with the index up just 54.8% in the last decade, a CAGR of just 4.5%.
What’s most impressive about Couche-Tard is the fact that it has defensive operations, but it’s also consistently expanding its operations, leading to the strong and consistent growth in its share price.
And today, even with so much uncertainty in the economy, Couche-Tard stock is trading essentially at its all-time high.
So, with that in mind, let’s look at why Couche-Tard stock has been performing so well and where it could go over the next five years.
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Couche-Tard continues to expand its operations around the world
One of the primary reasons why Couche-Tard stock has such an impressive track record of consistent growth is that it operates convenience stores and gas stations — two defensive industries — as well as the fact that its operations are well-diversified all over the world.
In fact, just over 10 years after expanding into Europe, it now has over 3,100 sites there and more than 14,400 sites across the globe, with operations in 25 different countries.
In Canada, where it all began for Couche-Tard stock, the company has locations from coast to coast and in the United States, it has operations in 47 of the 50 states.
And while Couche-Tard continues to look for strategic acquisitions, in recent years it’s also been increasing its focus on driving more organic growth as well. This includes consolidating its brands to help improve customer loyalty as well as improving its merchandising in its stores to naturally increase same-store sales growth.
It’s this strategy of consistently finding ways to grow its sales as well as acquiring more defensive assets all over the world that has allowed Couche-Tard to grow at such an exceptional pace.
But now the question is, can it keep up this impressive pace?
How is Couche-Tard stock valued?
As with any stock on the market, understanding how it’s valued is important. However, it’s also essential to understand there are tonnes of factors that could impact the stock over the next five years, especially with the uncertainty in the economy.
With that being said, though, Couche-Tard’s operations are considerably recession resistant, and the stock has a track record of adapting to changes in the economy.
So, with the stock now well established, sitting at a current market cap of more than $75 billion, the primary valuation that investors and analysts use to assess the value of Couche-Tard stock is its price-to-earnings (P/E) ratio.
And today, Alimentation Couche-Tard is trading at a forward P/E ratio of 18.1 times. That’s only slightly above its five- and 10-year average P/E ratios of 17.4 and 17.8 times, respectively.
However, considering it trades above its historical average at a time when there is still significant uncertainty about the economy, even if many believe rates will soon come down, the stock is certainly not cheap today.
It’s also worth mentioning that the bigger it gets, the harder it will be to continue growing at its exceptional historical pace.
At the same time, though, the bigger it gets, the more it can scale its operations and continue to find synergies.
Furthermore, Couche-Tard doesn’t pay much of a dividend at all, with a current yield of just 0.9%. So, even if its growth potential does slow down in the coming years, the stock could always decide to increase the dividend and start returning more capital to investors rather than investing so much in growth.
Not to mention, a high-quality and reliable stock like Couche-Tard will almost always trade with a premium.
So, although it’s not cheap, its impressive operations and consistent long-term growth potential still make it worth considering for your portfolio.
