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O'Reilly: Opportunity Ahead


  • ORLY shares recently took a massive hit after comps growth disappointed and company warned of decreased profitability.
  • The slowing growth likely has more to do with cyclical factors than it does with Amazon.
  • Shares had likely been overpriced and are now returning to fair value.
  • A further 10% drop would provide an excellent opportunity for long-term value and GARP investors.

In a previous article, I noted that O'Reilly (NASDAQ:ORLY) was a highly profitable company which

enjoys durable competitive advantages, is led by a management team with a strong record of wise capital allocation, and analysts project strong growth for its future. However, its share price reflects this optimistic outlook and its heavy debt burden must be addressed to shore up its long-term risk outlook. I recommend adding this company to your watchlist until management shows more of a commitment to paying down debt and either the share price dips or the company shows convincing signs of meeting analyst growth expectations.

So far the company has failed to convince of its ability to meet those optimistic analyst growth expectations, as its recent announcement of its disappointing same-store-sales growth (1.7% vs. 3%-5% expected) caused the share price to stumble to the low $170s from its ~$260 price at the time I wrote the article. Though this slowing growth will most definitely lead to a slower EPS growth rate, I believe this correction is overblown and could provide an opportunity for long-term value and growth-at-a-reasonable-price investors.

First of all, it is important to note that, although same-store growth has slowed significantly over the past two quarters, ORLY is still growing in same-store sales. In other words, its business model is not only maintaining its profitability, it is continuing to grow it in the face of increasing competition from Amazon (AMZN) and other internet parts suppliers. Given its pricing power, national network, and strong customer service, the company's business model should continue to prove resilient against the competition for years to come. During the 4th quarter conference call, CEO Greg Henslee echoed similar confidence in his business' ability to withstand the Amazon challenge:

[when it comes to] the transition to online [the company has] "not seen much

This article was written by

Samuel Smith profile picture
Become a “High Yield Investor” with our 8% Yielding Portfolio.

Samuel Smith is Vice President at Leonberg Capital and manages the High Yield Investor Seeking Alpha Investing Group.

Samuel is a Professional Engineer and Project Management Professional by training and holds a B.S. in Civil Engineering and Mathematics from the United States Military Academy at West Point and a Masters in Engineering from Texas A&M with a focus on Computational Engineering and Mathematics. He is a former Army officer, land development project engineer, and lead investment analyst at Sure Dividend.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, but may initiate a long position in ORLY over 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.

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