Entering text into the input field will update the search result below

O'Reilly Automotive: Buy On The Drop?

Kumquat Research profile picture
Kumquat Research


  • O'Reilly is down close to 20% after a sales for Q2 warning.
  • Comparable store sales missed expectations badly, sparking growth concerns.
  • The comps miss is very discouraging and could signal deeper issues with the industry.
  • I rate O'Reilly Automotive a Sell on the drop.

This article is the 65th installment in a segment called "Buy on the Drop?" in which I choose a stock that recently experienced a large decrease in price and give a recommendation on whether investors should "buy on the drop" or not. The recommendations are Sell, Hold, Speculative Buy, Buy, and Strong Buy.

O'Reilly Automotive (NASDAQ:ORLY) reported Wednesday that it missed comparable store sales guidance by a wide margin, sparking a 20% sell-off in shares of the auto parts retailer. The miss is substantial and I think it may be a harbinger for developments to come, which leads me to rate O'Reilly a Sell on the drop.

ORLY data by YCharts

ORLY is usually billed as a growth stock as it has reported year-over-year ("YoY") revenue growth for every quarter stretching back years. Similarly, Q1 2017 was the first time in years O'Reilly reported less than high single-digit growth (>5%) due to weak consumer demand:

ORLY Revenue (Quarterly YoY Growth) data by YCharts

The guidance originally issued during Q1 was solid with comps growth expected to be between 3% and 5% in Q2. However, on Wednesday, O'Reilly warned it saw weaker than expected consumer demand and pegged comps growth at just 1.7% for the quarter.

This is a big disappointment for investors after it appeared, from original guidance, that Q2 would perhaps be a first step in a recovery to revenue growth comparable to that of past years. But instead, the sales miss, which will undoubtedly trickle down into profits and margins, affirmed the concerns that have dogged ORLY and other stocks in the sector over the past 12 months.

For its part, O'Reilly's management claims the comps is due to "continued headwinds from a second consecutive mild winter and overall weak consumer demand". While the first reason could be seen as a

This article was written by

Kumquat Research profile picture
To follow me click the "Follow" button! (Easy right?) Articles written and comments posted by Kumquat Research are NOT financial or investment advice, and only express his opinion. Do your own due diligence!

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

Recommended For You

To ensure this doesn’t happen in the future, please enable Javascript and cookies in your browser.
Is this happening to you frequently? Please report it on our feedback forum.
If you have an ad-blocker enabled you may be blocked from proceeding. Please disable your ad-blocker and refresh.