O'Reilly Automotive Inc (ORLY, Financial) saw a daily gain of 1.47%, and a 0.2% increase over the last three months. With an Earnings Per Share (EPS) of 36.04, the question arises: is the stock fairly valued? In this article, we delve into a comprehensive valuation analysis of O'Reilly Automotive. We invite you to explore with us.
About O'Reilly Automotive Inc
O'Reilly Automotive is one of the largest sellers of aftermarket automotive parts, tools, and accessories, serving both professional and DIY customers. Boasting nearly 6,000 stores across 47 U.S. states and Mexico, the company has a strong presence in the market. As of August 18, 2023, O'Reilly Automotive's stock price stands at $945.38, with a market cap of $57 billion. Our analysis suggests that this price aligns closely with the company's intrinsic value, as calculated by the GF Value.
Understanding the GF Value
The GF Value is a unique measure that estimates a stock's fair value, considering historical trading multiples, past performance, and future business performance estimates. The GF Value Line gives an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued, and if it is significantly below, it is undervalued.
O'Reilly Automotive's GF Value
According to our calculations, O'Reilly Automotive's stock appears to be fairly valued. The GF Value Line indicates that the stock should ideally trade at its current price of $945.38 per share. Given that the company is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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O'Reilly Automotive's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To mitigate this risk, it's crucial to review a company's financial strength before deciding to purchase shares. O'Reilly Automotive has a cash-to-debt ratio of 0.01, ranking lower than 97.73% of companies in the Retail - Cyclical industry. The overall financial strength of O'Reilly Automotive is 5 out of 10, indicating fair financial strength.
O'Reilly Automotive's Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. O'Reilly Automotive has been profitable for the past 10 years, with high profit margins. The company had a revenue of $15.20 billion and an Earnings Per Share (EPS) of $36.04 over the past twelve months. Its operating margin is 20.08%, ranking better than 93.51% of companies in the Retail - Cyclical industry.
Company growth is a critical factor in valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of O'Reilly Automotive is 19.3%, ranking better than 81.42% of companies in the Retail - Cyclical industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, O'Reilly Automotive's ROIC is 27.44, and its WACC is 7.36.
Conclusion
In conclusion, O'Reilly Automotive's stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.95% of companies in the Retail - Cyclical industry. To learn more about O'Reilly Automotive stock, you can check out its 30-Year Financials here.
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