Over the last six months, O'Reilly’s shares have sunk to $87.06, producing a disappointing 7.3% loss - a stark contrast to the S&P 500’s 12% gain. This might have investors contemplating their next move.
Following the drawdown, is now a good time to buy ORLY? Find out in our full research report, it’s free.
Why Is O'Reilly a Good Business?
Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ:ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.
1. Surging Same-Store Sales Show Increasing Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
O'Reilly has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 4.9%.
2. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses — everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
O'Reilly’s operating margin has generally stayed the same over the last 12 months, averaging 19.4% over the last two years. This profitability was elite for a consumer retail business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.
3. Stellar ROIC Showcases Lucrative Growth Opportunities
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
O'Reilly’s five-year average ROIC was 42.2%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.
Final Judgment
These are just a few reasons why we’re bullish on O'Reilly. With the recent decline, the stock trades at 25.4× forward P/E (or $87.06 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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