The Canadian equity markets are upbeat this month, with the TSX/S&P 500 Composite Index rising by around 1%. Solid quarterly performances and easing inflation have improved investors’ sentiments, boosting the equity market. However, several analysts expect a global economic slowdown this year amid the impact of monetary tightening initiatives. So, the equity markets could be volatile in the near term.
Considering all these factors, let’s assess which between Alimentation Couche-Tard (TSX:ATD) and goeasy (TSX:GSY) would be an excellent buy right now.
Alimentation Couche-Tard
Alimentation Couche-Tard is a convenience store operator that operates around 16,100 stores across 28 countries. It also sells road transportation fuel through its 13,100 stores. After delivering impressive returns of 32% last year, the company is trading 8.4% higher for this year. Solid financials and aggressive expansion have driven the company’s stock price higher. Despite the recent increases, the company’s valuation looks reasonable, with its NTM (next-12-month) price-to-sales and NTM price-to-earnings multiples at 0.8 and 18.7, respectively.
Further, the Laval-based company is progressing with its “10 For The Win,” a five-year strategy that can expand its adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) to $10 billion by 2028. Last month, it acquired certain European retail assets from TotalEnergies, consisting of 2,175 sites across Germany, Belgium, the Netherlands, and Luxembourg. This acquisition has expanded its reach in Europe.
Further, ATD has plans to construct 500 stores by the end of 2028. Meanwhile, the company has already opened 40 of these stores as of September 30, while several other stores are in the construction stage. So, the company’s growth prospects look healthy. The company has raised its quarterly dividend 10 times since 2013 at a CAGR (compound annual growth rate) of 27%. Its forward yield is at 0.83%, which is lower. However, investors could benefit from consistent dividend growth.
goeasy
goeasy, which offers leasing and lending services to subprime customers, reported an excellent fourth-quarter performance earlier this month. It generated loan originations of $705 million amid record loan applications. The increase in loan originations expanded its loan portfolio to $3.65 billion, a 30% increase from the previous year’s quarter.
The company also witnessed stable credit and payment performance, with its net charge-off rate declining 20 basis points to 8.8%. It was closer to the lower end of the management’s guidance of 8.5-10.5%. Its allowance for future credit losses has declined by 0.09% to 7.28%. A favourable product mix and enhanced underwriting and income verification boosted its operating performance. Amid these solid operating performances, the subprime lender has grown its revenue and adjusted EPS (earnings per share) by 24% and 32%, respectively.
Meanwhile, the company continues its long-term strategy of expanding its product offerings, developing new distribution channels, and strengthening its auto financing segment, driving growth. Amid these growth initiatives, the company’s management expects its loan portfolio to reach $5.80-$6.20 billion by the end of 2026. The midpoint of the guidance represents a growth of 65% from its current levels. So, its growth prospects look healthy. Its valuation also looks reasonable, with its NTM price-to-sales and NTM price-to-earnings multiples at 1.9 and 9.9, respectively.
Notably, goeasy has rewarded its shareholders by raising quarterly dividends for the previous 10 consecutive years, with its forward yield at 2.82%.
Investors’ growth prospects
Although both companies offer excellent buying opportunities at these levels, I believe risk-averse investors could go long with ATD, given the essential nature of its business. Meanwhile, goeasy would be an excellent buy for higher risk-tolerant investors, given its growth potential.
