How to Analyze a Stock – Alimentation Couche-Tard

My new 2021 purchase: Alimentation Couche-Tard

On January 15th I purchased 50 shares of Alimentation Couche-Tard (TSE:ATD.B).

In today’s post I will explain how to price a stock, and why I think it’s a good time buy Couche-Tard.

 

A Defensive Strategy for 2021

As mentioned in my 2021 financial plan, I think consumer defensive and staple companies will perform well this year as deflationary pressures weigh down on the economy.

Couche-Tard fits this narrative well and January is a good time to buy after it has been pummeled by the markets last year. This is a large convenience store chain that has a market cap of $42 billion. The company has 15,000 stores across Canada, the United States, Mexico, Europe, and Asia.

Alimentation Couche-Tard logo

 

Fundamental analysis for ATD.B

When it comes to choosing stocks the number one thing I screen for is earnings growth over a long period of time. If a company isn’t growing its bottom line I’m not interested. Couche-Tard has averaged roughly 20% annual earnings per share (EPS) growth over the last 5 years and 10 years. That’s really consistent. 🙂

Secondary factors that are also important to consider include the revenue, and operating margin. Both metrics are very favorable for ATD.B. 🙂

  • Revenue – Grown about 3x over the last decade. The company is increasing its market share. Awesome.
  • Operating margin – About doubled over the last 10 years. That’s impressive as convenience stores usually have low margins as a sector. If the operating margin of a company falls over time that is a red flag.

 

Security analysis: How to determine a stock’s fair value

So we have established this is a strong, blue-chip company with high growth prospects. Now it’s time to determine the stock’s intrinsic value to find out if it’s cheap or expensive. The P/E ratio of ATD.B is 15x which is considered cheap given its historical growth rate. But let’s dig a little deeper.

I used the Graham Formula to determine the fair value of ATD.B

EPS = Trailing twelve months earnings per share.
8.5 = P/E base for a slow-growth company.
g = Expected long term earnings growth rate.

Couche-Tard’s EPS was $2.09 in 2020.
The analyst consensus for its growth rate is 22. But I will use 10 to be on the conservative side.

Intrinsic value V = $2.09 x (8.5 + (2 x 10))
V = $59.57

Based on the Graham Formula ATD.B should be worth roughly $60/share today. So buying it at $37.50/share gave me a pretty wide margin of safety. 😀

 

Other signs to consider:

  • Dividends –  The company increased dividends almost every year for over a decade. Average dividend growth is 23% a year since 2011. This technically makes it a dividend growth stock, which is the best type of stock in my opinion. A history of growing dividends is a sign the business has a sustained track record of increasing cash flow and profitability.
  • PEG ratio – The price to earnings ratio divided by the forecasted growth rate is an indicator for value. The lower the PEG – the cheaper the stock. Right now the PEG is at one of the lowest point in the stock’s history. I expect this ratio to recover and with it, the stock price should rise assuming other factors remain constant.
  • Analysts’ ratings and price targets – Stock analysts aren’t always right. But their predictions can be used as a sanity check to make sure your own conclusions about a stock is based on sound fundamentals. The consensus from experts indicate that ATD.B will be worth 43% more a year from now. That’s a pretty good endorsement. 🙂

 

Even when the overall stock market in the US is at all time highs, it’s still possible to find value. Alimentation Couche-Tard trades over the counter as (ANCUF) in the United States. As usual this is a long term hold for me. I will just let it grow in my tax free savings account.

There are multiple ways to evaluate a stock. Do you agree with my buy decision? Or do you think ATD.B is currently overvalued? 🙂

Won’t stop, GameStop

I plan to hold most of my investments to retirement. But sometimes I like to speculate using some play money. Last week as a YOLO trade I bought $GME and $AMC. I believe in this internet movement. I want see the hedge funds face the consequences of their risky actions. To the moon! 🚀🚀🚀

 

————————————————————————
Random Useless Fact:

Entry-level camera operators can expect to make $18 per hour.

 

 

Subscribe
Notify of
guest
16 Comments
Inline Feedbacks
View all comments
Findependence40
Findependence40
02/01/2021 10:13 am

This is one that has been on my watchlist for along time, I picked up 200 shares on the 15th as well. I think high $30s is a great entry point for such a high quality company.

Manish
Manish
02/01/2021 10:48 am

Thank you for detailed explanation. Is there a specific app you use to get EPS, Revenue and operating margin. I feel like i have to dig in quite a bit to get those details but I’m also a noob. Thanks

Manish
Manish
02/01/2021 12:03 pm

Thank you.

Krishna
Krishna
02/02/2021 6:19 am

Simple and to the point explanation. I purchased 300 of couch last month for 37. I believe In the company and there dividend growth.I am sure they will find some other company in 2021 to acquire and grow

seapotato
seapotato
02/02/2021 8:26 am

I also purchased ATD but I bought in at $43. Ugh. Oh well, long term hold.

mkbui
mkbui
02/02/2021 4:36 pm

Doubled my position on the 13th, we like the stock 😉

Reverse The Crush
02/03/2021 11:16 am

Excellent article! I like what you said about earnings growth being the main priority. I kept hearing about ATD.B and I’ve been familiar with it for a while. But I have never completed a solid analysis of it. It certainly looks like a dividend growth stock worth adding to my buy list.

Phil
Phil
02/08/2021 6:02 pm

I’ve had this as part of my RRSP for a while now… Originally had 600 shares at a $26 in, and have trimmed over time as it has ebbed and flowed. I currently hold 300 shares. I read a blurb about some insiders adding to their positions, but for me it is just a slow and steady as she goes kinda stock.

trackback

[…] is why last week I wrote about purchasing Open Text and Tesla stocks. I also bought Alimentation Couche-Tard, another growth stock, earlier in the […]