Alimentation Couche-Tard Stock: Buy or Bail?

Filling up at the gas pumps.

Alimentation Couche-Tard (TSX:ATD) has left the broader markets behind with its outstanding multi-year run that can’t seem to be stopped. Even amid turbulence in September and October, ATD stock is less than 3% away from all-time highs.

As a solid consumer staple name that can win in almost any sort of economic climate, I have to stay incredibly upbeat on the firm, as it moves forward with another five-year growth plan — one that I believe could bring forth more of the same for the firm and extend its rally to even higher levels.

Couche-Tard’s still cheap, with room to run on earnings and multiple expansion

The multi-year rally, which began in the depths of 2021, has been remarkable. The good news is that it’s likely not too late to get in, with shares going for $72 and change.

The stock looks quite affordable still at 17.22 times trailing price to earnings (P/E). As the company continues doing its best to drive earnings growth, the valuation multiples could contract if shares don’t continue their ascent. Indeed, it’s always nice to ride a rally that doesn’t see the P/E multiple expand.

Multiple expansion can be warranted if the fundamentals have improved for the better. But sometimes, it’s hard to tell how much of an expansion should be rewarded for positive changes. Arguably, I believe ATD stock deserves some multiple expansion, perhaps toward the 22-25 times trailing P/E mark.

Sure, it’s been years since Couche-Tard commanded a P/E ratio north of 20 times.

Given its strong balance sheet is that much more attractive in a world of high rates, I’d argue it’s time for Couche to revisit the higher end of its P/E range. Further, its resilience through inflation and consumer sluggishness are also big pluses that investors may not yet be fully appreciating.

Couche-Tard benefits as the U.S. dollar strengthens against the loonie

Indeed, a multiple less than 20 times doesn’t seem all too indicative of a durable growth company. Personally, I think ATD stock would go for a higher multiple had it been an American firm traded on the NYSE or Nasdaq.

In any case, I think Couche-Tard is a name that should also have the attention of our American peers, especially now that the U.S. dollar is so strong versus the loonie. As the loonie sags versus the greenback, Couche-Tard could stand to benefit, given a large chunk of its Circle K locations are south of the border. They charge and report earnings in U.S. dollars.

That’s a huge plus at a time like this, when the loonie continues to sink. With the Bank of Canada holding off on rate hikes at its latest meeting, it’s no mystery as to why the loonie is stuck in a rut. If the Federal Reserve hikes, look for even more weakness in the Canadian dollar. That’s another tailwind for Couche-Tard, though!

Bottom line

Couche-Tard stock stands out as a winner that has the means to extend its rally into 2024 and beyond. As other companies feel headwinds, Couche has wind to its back. It’s a great consumer staple to hang onto for the rough ride for the markets. I’m no momentum investor, but I think all signs are looking up for Couche. The valuation is reasonable, and there are intriguing catalysts that could continue to work in the firm’s favour.

The post Alimentation Couche-Tard Stock: Buy or Bail? appeared first on The Motley Fool Canada.

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Fool contributor Joey Frenette has positions in Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard. The Motley Fool has a disclosure policy.