O'Reilly Automotive Inc (ORLY, Financial) experienced a daily gain of 5.34%, despite a three-month loss of 4.5%. Its Earnings Per Share (EPS) stands at 37.59. But is the stock fairly valued? This article provides an in-depth valuation analysis of O'Reilly Automotive. Let's dive in.
Company Overview
O'Reilly Automotive is a leading player in the aftermarket automotive parts industry, serving both professional and DIY customers. With a history dating back to 1957, the company has grown to operate 5,971 stores across 47 U.S. states and Mexico. It offers both branded and own-label products, with the latter accounting for nearly half of sales.
The company's stock is currently priced at $921.64, while its GF Value, an estimation of its fair value, stands at $886.51. This comparison forms the basis of our valuation analysis.
Understanding the GF Value
The GF Value is a proprietary measure that represents a stock's intrinsic value. It's computed based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value.
When the stock price is significantly above the GF Value Line, it indicates overvaluation and potential poor future returns. Conversely, if the stock price falls significantly below the GF Value Line, it suggests undervaluation and potentially higher future returns.
Given its current price of $921.64 per share, O'Reilly Automotive (ORLY, Financial) appears to be fairly valued. This suggests that the long-term return of its stock is likely to be close to the rate of its business growth.
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Financial Strength
Investing in companies with poor financial strength can pose a high risk of permanent capital loss. It's crucial to review a company's financial strength before investing, considering factors like the cash-to-debt ratio and interest coverage. O'Reilly Automotive has a cash-to-debt ratio of 0.01, ranking worse than 97.46% of companies in the Retail - Cyclical industry. Its overall financial strength is 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, reduces risk. O'Reilly Automotive has been profitable 10 years over the past decade. Its operating margin is 20.08%, ranking better than 93.9% of companies in the Retail - Cyclical industry. This indicates strong profitability.
Growth is a crucial factor in a company's valuation. O'Reilly Automotive's 3-year average revenue growth rate is better than 82.16% of companies in the Retail - Cyclical industry. Its 3-year average EBITDA growth rate is 21.7%, ranking better than 73.3% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insight into its profitability. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. O'Reilly Automotive's ROIC is 27.44, while its WACC is 8.2, indicating value creation.
Conclusion
In conclusion, O'Reilly Automotive (ORLY, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 73.3% 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
