We don’t think ATD’s valuation is “priced-for-perfection” now. The company is trading at 18.3x Forward P/E, at the higher end of historical averages ranging from 15x to 18.5x Forward P/E. That said, we think the premium valuation made sense as more than ever the company has demonstrated the resiliency of the business model and great management execution through challenging macro environments of inflations, high interest rates, supply chain issues, etc. In addition, in FY2023, ATD bought back shares more than any single year previously, a very healthy policy for shareholders. In our opinion, ATD is trading at a fair valuation. ATD’s debt profile is very reasonable given the predictability of the business, net debt/EBITDA is around 1.5x, which is in line with historical averages. ATD's business model is highly resilient with staying power. Some of the risks for ATD we could think of is the risk of overpaying for acquisitions, which could lead to goodwill impairtment. Although the company's track record indicates its ability to make and integrate acquisitions is excellent.
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