Alimentation Couche-Tard Inc.'s (TSE:ATD.B) Business Is Trailing The Market But Its Shares Aren't

With a median price-to-earnings (or "P/E") ratio of close to 17x in Canada, you could be forgiven for feeling indifferent about Alimentation Couche-Tard Inc.'s (TSE:ATD.B) P/E ratio of 16.4x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Alimentation Couche-Tard has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Alimentation Couche-Tard

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Alimentation Couche-Tard.

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Alimentation Couche-Tard's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 97% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 0.3% each year as estimated by the ten analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 29% each year, which is noticeably more attractive.

With this information, we find it interesting that Alimentation Couche-Tard is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Alimentation Couche-Tard's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Alimentation Couche-Tard's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 2 warning signs for Alimentation Couche-Tard that you need to take into consideration.

If these risks are making you reconsider your opinion on Alimentation Couche-Tard, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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