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Alimentation Couche-Tard stock is up nearly 15 per cent this year, outperforming the S&P/TSX Composite Index by about 19 percentage points.CHRISTINNE MUSCHI/Reuters

Alimentation Couche-Tard Inc. ATD-T shares have been strong performers this year, delivering impressive gains even as benchmark indexes struggle. There is a compelling case for sticking with this winner.

The Quebec-based company operates more than 14,000 convenience stores in 24 countries, including Canada, the United States and Sweden, under Couche-Tard, Circle K and Ingo banners.

By its estimates, it sells about 132 million litres of gas a day, along with 490,000 hot dogs and 750,000 cups of coffee.

That might sound like a recipe for regret, or at least a case of indigestion, though investors will likely be intrigued by the company’s success: The stock is up nearly 15 per cent this year, outperforming the S&P/TSX Composite Index by about 19 percentage points.

Over the past three years, the stock has gained nearly 45 per cent, which is more than double the gain for the Canadian benchmark over the same period. The stock’s three-year performance beats household names such as Royal Bank of Canada, Shopify Inc., Suncor Energy Inc. and Brookfield Asset Management Inc., to name a few.

Couche-Tard’s secret: growth, and lots of it, even during the pandemic.

Following the acquisition of rival chains, the rollout of new stores and the streamlining of brand-names – stores are now mostly operating under Circle K banners in North America – Couche-Tard’s annual revenues have increased 66 per cent over the past five fiscal years.

Profits over the past three years, which included travel restrictions related to the pandemic, increased by nearly 56 per cent on a per-share basis.

This week, it reported a fiscal second-quarter profit of 79 US cents a share, up 21.5 per cent from the same period last year and driven partly by strong margins on fuel sales. The company raised its modest quarterly dividend by 27.3 per cent, and touted its expansion into charging stations for electric vehicles and the success of adding fresh food options at its stores.

The problem? The stock is hardly an undiscovered gem: It traded at a record high earlier this month.

But what’s interesting is that the bullish case remains persuasive and the company appears to have the right defensive qualities to get it through any economic turmoil.

The convenience store concept is relatively mature, given that the total number of U.S. stores increased by just 2 per cent over the 15 years from 2006 to 2021.

Yet, Couche-Tard’s strategy of increasing its global footprint – which generates benefits through a larger supply chain network and sophisticated data on consumer behaviour – has plenty of room for further growth.

That’s because the company’s share of the U.S. market, by far its largest in terms of sales, stands at just 5 per cent, even after it added 1,300 stores through its acquisition of CST Brands in 2017.

Last year, it added 36 stores through small deals for Purple Cow stores on the U.S. Gulf Coast and Pic Quik stores in New Mexico. Management expects that the pace of deals could pick up.

“The balance sheet is very strong and the appetite is there,” Brian Hannasch, chief executive officer of Couche-Tard, said during a conference call with analysts this week.

“I’m cautiously optimistic that this environment, with tighter credit from higher interest rates, will be better for Couche-Tard than it has been in the last three or four years, when there has been a lot of competition,” Mr. Hannasch said.

A recession, which is looming over the North American economy, might not be a big threat either.

From 2007 through 2009, during the financial crisis, industry-wide convenience store sales increased 8 per cent, according to Couche-Tard’s figures. Sales even increased slightly in 2020, during the most economically destructive period of the pandemic.

The final piece to consider here is valuation, which looks reasonable.

Though the stock is up considerably this year and is currently less than 4 per cent below its record high on Nov. 11, it trades at about 15.5 times estimated 2022 earnings.

That’s below the five-year average price-to-earnings ratio of 17, according to Bank of Nova Scotia analyst George Doumet, who expects the stock can rally another 12 per cent within a year.

Prefer to wait for a dip? Margins on fuel sales are contracting as gasoline prices in North America decline and operations in Europe are struggling with energy shortages, which could weigh on sentiment.

But a fairly valued stock that’s backed by solid growth might not be on sale for long.

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