Alimentation Couche-Tard (TSE:ATD) Might Have The Makings Of A Multi-Bagger

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'd want to identify a growing return on capital employed (ROCE) and then alongside that, an ever-increasing base of capital employed. If you see this, it typically means it's a company with a great business model and plenty of profitable reinvestment opportunities. With that in mind, we've noticed some promising trends at Alimentation Couche-Tard (TSE:ATD) so let's look a bit deeper.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. The formula for this calculation on Alimentation Couche-Tard is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.17 = US$3.9b ÷ (US$28b - US$5.3b) (Based on the trailing twelve months to January 2023).

Thus, Alimentation Couche-Tard has an ROCE of 17%. In absolute terms, that's a satisfactory return, but compared to the Consumer Retailing industry average of 12% it's much better.

Check out our latest analysis for Alimentation Couche-Tard

Above you can see how the current ROCE for Alimentation Couche-Tard compares to its prior returns on capital, but there's only so much you can tell from the past. If you're interested, you can view the analysts predictions in our free report on analyst forecasts for the company.

SWOT Analysis for Alimentation Couche-Tard

What Can We Tell From Alimentation Couche-Tard's ROCE Trend?

We like the trends that we're seeing from Alimentation Couche-Tard. The data shows that returns on capital have increased substantially over the last five years to 17%. The amount of capital employed has increased too, by 21%. The increasing returns on a growing amount of capital is common amongst multi-baggers and that's why we're impressed.

What We Can Learn From Alimentation Couche-Tard's ROCE

All in all, it's terrific to see that Alimentation Couche-Tard is reaping the rewards from prior investments and is growing its capital base. Since the stock has returned a staggering 163% to shareholders over the last five years, it looks like investors are recognizing these changes. With that being said, we still think the promising fundamentals mean the company deserves some further due diligence.

Alimentation Couche-Tard does have some risks though, and we've spotted 1 warning sign for Alimentation Couche-Tard that you might be interested in.

While Alimentation Couche-Tard may not currently earn the highest returns, we've compiled a list of companies that currently earn more than 25% return on equity. Check out this free list here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.