Is Alimentation Couche-Tard Inc.'s (TSE:ATD) Recent Stock Performance Influenced By Its Financials In Any Way?

Alimentation Couche-Tard's (TSE:ATD) stock up by 7.3% over the past three months. Given that stock prices are usually aligned with a company's financial performance in the long-term, we decided to investigate if the company's decent financials had a hand to play in the recent price move. Specifically, we decided to study Alimentation Couche-Tard's ROE in this article.

Return on Equity or ROE is a test of how effectively a company is growing its value and managing investors’ money. In other words, it is a profitability ratio which measures the rate of return on the capital provided by the company's shareholders.

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How To Calculate Return On Equity?

ROE can be calculated by using the formula:

Return on Equity = Net Profit (from continuing operations) ÷ Shareholders' Equity

So, based on the above formula, the ROE for Alimentation Couche-Tard is:

16% = US$2.6b ÷ US$16b (Based on the trailing twelve months to July 2025).

The 'return' is the amount earned after tax over the last twelve months. One way to conceptualize this is that for each CA$1 of shareholders' capital it has, the company made CA$0.16 in profit.

See our latest analysis for Alimentation Couche-Tard

Why Is ROE Important For Earnings Growth?

Thus far, we have learned that ROE measures how efficiently a company is generating its profits. Based on how much of its profits the company chooses to reinvest or "retain", we are then able to evaluate a company's future ability to generate profits. Assuming everything else remains unchanged, the higher the ROE and profit retention, the higher the growth rate of a company compared to companies that don't necessarily bear these characteristics.

Alimentation Couche-Tard's Earnings Growth And 16% ROE

To begin with, Alimentation Couche-Tard seems to have a respectable ROE. Further, the company's ROE is similar to the industry average of 15%. Given the circumstances, we can't help but wonder why Alimentation Couche-Tard saw little to no growth in the past five years. So, there could be some other aspects that could potentially be preventing the company from growing. These include low earnings retention or poor allocation of capital.

As a next step, we compared Alimentation Couche-Tard's net income growth with the industry and discovered that the industry saw an average growth of 2.8% in the same period.

Earnings growth is a huge factor in stock valuation. It’s important for an investor to know whether the market has priced in the company's expected earnings growth (or decline). By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. What is ATD worth today? The intrinsic value infographic in our free research report helps visualize whether ATD is currently mispriced by the market.

Is Alimentation Couche-Tard Making Efficient Use Of Its Profits?

Alimentation Couche-Tard's low three-year median payout ratio of 16% (implying that the company keeps84% of its income) should mean that the company is retaining most of its earnings to fuel its growth and this should be reflected in its growth number, but that's not the case.

In addition, Alimentation Couche-Tard has been paying dividends over a period of at least ten years suggesting that keeping up dividend payments is way more important to the management even if it comes at the cost of business growth. Upon studying the latest analysts' consensus data, we found that the company is expected to keep paying out approximately 17% of its profits over the next three years. Accordingly, forecasts suggest that Alimentation Couche-Tard's future ROE will be 19% which is again, similar to the current ROE.

Conclusion

On the whole, we do feel that Alimentation Couche-Tard has some positive attributes. However, given the high ROE and high profit retention, we would expect the company to be delivering strong earnings growth, but that isn't the case here. This suggests that there might be some external threat to the business, that's hampering its growth. With that said, we studied the latest analyst forecasts and found that while the company has shrunk its earnings in the past, analysts expect its earnings to grow in the future. To know more about the company's future earnings growth forecasts take a look at this free report on analyst forecasts for the company to find out more.

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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.