Alimentation Couche-Tard Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of Alimentation Couche-Tard (OTCPK:ANCUF, 30-year Financials) is believed to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $35.215 per share and the market cap of $38 billion, Alimentation Couche-Tard stock gives every indication of being significantly overvalued. GF Value for Alimentation Couche-Tard is shown in the chart below.
Because Alimentation Couche-Tard is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which averaged 14.8% over the past five years.
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Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Alimentation Couche-Tard has a cash-to-debt ratio of 0.28, which is in the middle range of the companies in the industry of Retail - Defensive. GuruFocus ranks the overall financial strength of Alimentation Couche-Tard at 6 out of 10, which indicates that the financial strength of Alimentation Couche-Tard is fair. This is the debt and cash of Alimentation Couche-Tard over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Alimentation Couche-Tard has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $43.2 billion and earnings of $2.44 a share. Its operating margin of 8.40% better than 88% of the companies in the industry of Retail - Defensive. Overall, GuruFocus ranks Alimentation Couche-Tard's profitability as strong. This is the revenue and net income of Alimentation Couche-Tard over the past years:
Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Alimentation Couche-Tard's 3-year average revenue growth rate is better than 86% of the companies in the industry of Retail - Defensive. Alimentation Couche-Tard's 3-year average EBITDA growth rate is 26.6%, which ranks better than 78% of the companies in the industry of Retail - Defensive.
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Alimentation Couche-Tard's return on invested capital is 14.07, and its cost of capital is 6.26. The historical ROIC vs WACC comparison of Alimentation Couche-Tard is shown below:
In short, Alimentation Couche-Tard (OTCPK:ANCUF, 30-year Financials) stock is believed to be significantly overvalued. The company's financial condition is fair and its profitability is strong. Its growth ranks better than 78% of the companies in the industry of Retail - Defensive. To learn more about Alimentation Couche-Tard stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
