samedi 23 janvier 2021

Some other thoughts about Couche-Tard

Even if some people seem optimist about Couche-Tard, I can't help but being still a bit worried about them. 

Of course, like Jason Del Vicario says, Couche-Tard management is great. Being so successful in such a low margin sector (5-6% profit margins) shows us how great they are. And they've been great since 1980, so, they have a 40 years track record behing them, which is most than a lot of stocks. 

A great management in a challenging environment will probably remain great but probably less effective. How can any management fight against electric cars? Electric car will become cheaper and cheaper. It won't happen overnight, but in a few years, they'll be affordable for much more people than today. The market already knows that. 

Also, recently, I read that Couche-Tard thought these last years about a diversification via buying some groceries, fast food stores, dollar stores or airport stores (french reference here). They say that convenience stores are more expensive than they used to be, but I see that as an admission that they need to diversify to be less exposed to fuel sales. How come changing a recipe that works, if it really works? How would people react if Canadian National bought some truck delivery company? Why going that road after 40 years in a single sector? 

On the other hand, Alain Bouchard bought for 7,2 million dollars of shares last wednesday. Richard Fortin, a cofounder, bought for about 1 million dollars of shares last friday. Thus showing how they believe in their company. Of course, for a billionaire like Couche-Tard, 7,2 million dollars is no big deal. It's like the money we lose in the cracks of the couch for us. It's like 4$ amongst fruit loops in the couch. 

But, above all these informations, I think that the market is usually right, in a "no-panic" moment. Actually, I think that the market is currently overly optimist. And even before the big drop following the news of Carrefour acquisition, the market was a bit pessimist about Couche-Tard. 

Finally, I still own my shares, but I'm still doubting a lot about the rational behind keeping them. I don't think that there's a lot of risk with Couche-Tard in the short term. But I don't think that this is the easiest way to look for some performance in 2021. 

4 commentaires:

  1. I think this uncertainty about being concentrated in selling gas combined to the fact that gas stores acquisitions are move expensive signals the end of the glory for that business model. Probably this is why the stock have not done much since 5 years. Diversification will provide more safety, but I doubt they will be able to do a lot of big acquisitions as elephants are more rare than mice.

  2. I read that Couche tard wants to position the company as a retailer, looking at grocery stores and dollar stores. This strategic shift is within their competence. It it is still optimization of the supply chain and torking their supplier with their huge buying power.

    This strategic shift make sense to me, and it sounds like the best way to keep the company healthy with the reduction of gas sale and adapting with the upcoming market of the electric car.

    Finally, Couche tard own the land of most of their convenience store, which is significant because they are located at prime location. In the long run, the question is more that what will Couche Tard will get in return from this prime real estate asset.

    It is a buy opprtunity, but the question is what is the proportion of your portfolio you are willing to invest given the circumstance, and knowing that it is a fair bet that you will get something around 10% return for the next 5 years