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O'Reilly Automotive: Steady Or Stagnant?

Mar. 27, 2023 9:03 AM ETO'Reilly Automotive, Inc. (ORLY)10 Comments


  • Revenue growth rates are projected to decline.
  • Return on Net Tangible Assets is also declining.
  • Still, these declines do not suggest a significant hit to long-term economic prospects.

O'Reilly Auto Parts store under cloud blue sky


Bottom Line Up Front

O'Reilly's (NASDAQ:ORLY) growth rates have decreased when comparing revenue forecasts to prior years. This suggests that price appreciation returns are likely to be lower in the next two years than they have been in the

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I approach investment research from a data science perspective leveraging my knowledge in artificial intelligence and big data so that investors can achieve superior results.  Masters of Science in Management from Naval Postgraduate School, a Mechanical and Aerospace Engineering degree from RIT, and a Lean Six Sigma Black Belt have combined to create a unique advantage.  I am also formalizing my data science skills as a current PhD Student in Computational Science and Informatics at George Mason University.Deep analytical experience on complex systems led to the development of a quantitative model to analyze the intrinsic value of publicly traded companies with a focus on long term value investing. An adaptive algorithm predicts future risk and return based on earnings, revenue, industry analyst expectations, and other attributes.  Machine Learning techniques have enabled the algorithms to provide useful and accurate predictions in all market conditions.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ORLY either through stock ownership, options, or other derivatives. 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.

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Comments (10)

Tao Jaxx profile picture
I like and own both ORLY and AZO. Nagging question I have is that their longstanding policy of constant stock buybacks ends up depleting shareholders' equity to the point that they both end up with a net shareholders' deficit, making them highly leveraged entities.
Any views on this?
Alpha Investment Research profile picture
@Tao Jaxx I think debt to equity is a strange metric for the exact reason you mention.

I focus on current ratio to answer “can they pay this years bills “ and debt to tangible assets to answer “have they borrowed more than they have accumulated”.

Neither are perfect but equity only makes sense to me as a way to make double ledger accounting work.
Tao Jaxx profile picture
@Alpha Investment Research Well, that's the thing, they both run on negative working capital as well...
So basically, they wholly run on other people's money. Like I said, I like the stocks, but that kind of bugs me a little bit.
David/David profile picture
There's AZO and AAP which look somewhat better. The problem all three have is that as EVs increase sales, the need for parts is going to decline, not increase.
Alpha Investment Research profile picture
@David/David thanks David.
The decreasing part volume you mention is definitely a possible future.
Alternative scenario is that the direct to consumer model the Tesla is using catches on and breaks the backs of the dealerships. This cause more non-manufacturer affiliated shops to open and increase reliance on non-manufacturer distribution networks such as ORLY.
We will all need to keep our eye on it.
My portfolio is loaded to the hilt with tech stocks, which comprise 92% of my holdings in dollars. One of the few companies I own outside of tech is ORLY. It's not commonplace to find a retail stock with a 51% gross margin and a 37% ROI. Their distribution network is designed to get just about any part you need to you within 24 hours regardless of where you live. Since people typically don't want to wait long for car parts and given that many of these items are expensive to ship because of their weight, the company has a level of Amazon resistance. All of their sales are in the USA and amazingly, they are profitable in rural areas!

A risk to ORLY is EV's, as they have fewer moving parts than ICE's. However, I don't think that ICE's are going away anytime soon, despite some states like CA, MA, NJ, and WA having unrealistic goals of eliminating ICE vehicle sales by 2030 to 2035. For one thing, California's power grid can't even handle its current demands. Hybrid vehicles are a more viable option, so ORLY probably still has a long runway. Long ORLY.
Alpha Investment Research profile picture
@Paul01x I have a very similar portfolio. Most of my articles are about tech stocks, because that's what's in my portfolio. I hold ORLY for the same reason too. It's an awesome company.
Good call on the long-term risk from EVs. I drive a Tesla and I by tires every 2 years and that's about it. Thanks for the comment.
@Paul01x Which begs the question, do you also own Autozone. I own both securities. Autozone seems to be a compound interest machine, but currently not cheap.
@magalengo, No, I only own ORLY in this sector. Holding two auto parts companies does not fit my investment style. We're in the midst of a tech boom, so my portfolio targets that mega-trend. I own 7 companies in the semiconductor sector because that is a high growth area. That includes AMAT, AVGO, LSCC MU, NVDA, QCOM, TXN. Note that these firms more or less target different sub-sectors. I also own all 5 of the FAAMG stocks, as well as ANET and PYPL. The remainder of my portfolio of 18 stocks, which are not in the tech sector, includes ABBV, HD, ORLY, ROST.
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