Investors should be aware that some of the best-performing stocks historically can come from any industry. o’reilly automotive (NASDAQ:Orly) proves this.
For the past 10 years this boring retail inventory It soared 581%. This gain is significantly higher than the total return of 224%. S&P500 index.
However, recently there has been an increase in pessimistic stories. O’Reilly stock is currently down 13% from its all-time high reached in late March a few weeks ago (as of May 3).
Could this be a once-in-a-generation buying opportunity during a downturn in stock prices?
focus on the big picture
O’Reilly announced its Q1 2024 financial results on April 24, but the market doesn’t seem to be too happy with the results. Revenues increased 7% year over year to total $4 billion. Additionally, diluted earnings per share amounted to $9.20, a gain of 11%. Those two headline numbers were lower than Wall Street expected, and stocks fell following the announcements.
Investors tend to get caught up in a single quarter’s financial results. That may be the case with O’Reilly. In my opinion, that latest number was still solid. Nevertheless, investors must always remain focused on the big picture.
O’Reilly is a really great business. One reason is that there is a durable demand that is not very demand sensitive. macroeconomics factor. People always need a car to get to the office, run errands, pick up their kids from school, etc. This reality remains unchanged.
The business has benefited from long-term industry tailwinds that will continue to support demand for some time to come. The average age of cars on U.S. roads is steadily increasing every year. It’s about 12.5 o’clock now. This is an important trend to watch.
Typical manufacturer warranties are 3 to 5 years. Your car will last much longer, so you’ll spend more time out of warranty. This is a great fit for O’Reilly as they sell a wide range of parts and supplies to keep your vehicle running longer.
Another tailwind is the simple fact that the number of miles driven in the United States is increasing every year. To be clear, this number is increasing by about 1% every year. But overall, this leads to increased wear and tear on the vehicle. Again, this trend supports demand for companies like O’Reilly.
O’Reilly’s financial situation
Despite what the recent performance of its stock price indicates, O’Reilly is a very profitable company. In the most recent quarter, the company gross profit 51.2% Operating profit margin is 18.9%, which shows how much revenue is contributing to the bottom line.
O’Reilly’s management has prioritized investing in growth opportunities, primarily the opening of new stores. Still, the company still collects a significant amount of free cash flow (FCF), totaling $2 billion in 2023. Executives reiterated their FCF guidance for this year, saying they expect revenue of $1.8 billion to $2.1 billion.
This financial windfall supports continued stock buybacks. O’Reilly’s outstanding shares have decreased by 5% over the past 12 months alone.
Please consider the rating
The stock is now down double digits from its all-time high, giving investors a more attractive buying opportunity. The price/earnings ratio is 25.8 times. Although this is lower than the 30.3x stock price multiple as of late March, it is still above the 23x average over the past five years.
i still believe The value of O’Reilly stock has become more reasonable. But from a historical perspective, they trade at a slight premium. I’m not saying this stock is a once-in-a-generation opportunity, but it should be one you consider adding to your portfolio right now.
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Neil Patel and his clients have no position in any stocks mentioned. The Motley Fool has no position in any stocks mentioned. The Motley Fool has a disclosure policy.
Is this great stock, down 13%, a once-in-a-generation investment opportunity during a downturn? Originally published by The Motley Fool
