Alimentation Couche-Tard Inc.'s (TSE:ATD) Has Had A Decent Run On The Stock market: Are Fundamentals In The Driver's Seat?

Alimentation Couche-Tard's (TSE:ATD) stock up by 1.5% 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 simpler terms, it measures the profitability of a company in relation to shareholder's equity.

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How To Calculate Return On Equity?

The formula for return on equity is:

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

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

17% = US$2.6b ÷ US$16b (Based on the trailing twelve months to October 2025).

The 'return' is the profit over the last twelve months. So, this means that for every CA$1 of its shareholder's investments, the company generates a profit of CA$0.17.

Check out 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.

A Side By Side comparison of Alimentation Couche-Tard's Earnings Growth And 17% ROE

At first glance, Alimentation Couche-Tard seems to have a decent ROE. On comparing with the average industry ROE of 14% the company's ROE looks pretty remarkable. However, we are curious as to how the high returns still resulted in flat growth for Alimentation Couche-Tard in the past five years. Therefore, 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.

We then compared Alimentation Couche-Tard's net income growth with the industry and found that the average industry growth rate was 2.4% in the same 5-year period.

Earnings growth is an important metric to consider when valuing a stock. What investors need to determine next is if the expected earnings growth, or the lack of it, is already built into the share price. By doing so, they will have an idea if the stock is headed into clear blue waters or if swampy waters await. Is ATD fairly valued? This infographic on the company's intrinsic value has everything you need to know.

Is Alimentation Couche-Tard Efficiently Re-investing Its Profits?

Alimentation Couche-Tard's low three-year median payout ratio of 18%, (meaning the company retains82% of profits) should mean that the company is retaining most of its earnings and consequently, should see higher growth than it has reported.

Additionally, Alimentation Couche-Tard has paid dividends over a period of at least ten years, which means that the company's management is determined to pay dividends even if it means little to no earnings growth. Our latest analyst data shows that the future payout ratio of the company over the next three years is expected to be approximately 18%. However, Alimentation Couche-Tard's ROE is predicted to rise to 21% despite there being no anticipated change in its payout ratio.

Summary

Overall, we feel that Alimentation Couche-Tard certainly does have some positive factors to consider. Although, we are disappointed to see a lack of growth in earnings even in spite of a high ROE and and a high reinvestment rate. We believe that there might be some outside factors that could be having a negative impact on the business. That being so, the latest industry analyst forecasts show that the analysts are expecting to see a huge improvement in the company's earnings growth rate. To know more about the latest analysts predictions for the company, check out this visualization of analyst forecasts for the company.

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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.