The BEST Auto Parts Store Company

Our TrackStar data offers unique insights into the minds of retail and financial pros.

An unusual trend emerged this month as we studied the data.

Financial pros and retail investors grew more interested in auto parts stores.

That might seem hard to believe, given the low number of financial pro searches listed above. But it is significantly higher as a group than in the last few months.

So, we dove into the group and found the one we feel presents the best investment opportunity.

O’Reilly Automotive’s Business

O’Reilly Automotive (ORLY) owns and operates retail outlets in the U.S. that specialize in automotive aftermarket parts, tools, supplies, equipment, and accessories for both professional installers and DIY hobbyists.

The company differentiates itself by providing its customers with the best combination of price and quality along with the highest possible service level.

Walk into any of their stores, and you’ll find vehicle accessories, such as floor mats and seat covers, as well as maintenance items like antifreeze, engine additives, filters, fluids, lighting and wiper blades. They also carry a wide range of new as well as remanufactured automotive hard parts like alternators, batteries, brake system components, belts, chassis parts, driveline parts, engine parts, and fuel pumps. 

O’Reilly has generated record revenues for 29 consecutive years. Mexico’s Mayasa Auto Parts in 2019 marked the company’s first foray into international markets.

Financials

Source: Stock Analysis

O’Reilly’s growth is nothing short of astounding, given those 29 years encompass the pandemic, the financial crisis, and the dot-com implosion.

Equally impressive is the free cash flow margin, nearly doubling from 2014 to 2022 as operating and profit margins expanded.

The company carries little cash on hand while managing $4.4 billion in long-term debt.

It’s a bit concerning to see a current ratio of 0.7x and a quick ratio of 0.1x.

With $4.4 billion tied up in inventory, we’d like to see them improve their general cash position.

Valuation

Source: Seeking Alpha

O’Reilly’s isn’t the cheapest of the group. It trades at the highest price-to-cash flow, P/E forward, P/E trailing, and Price-to-sales ratio.

So, why would we say this is the best of the bunch?

The next two sections have the answers.

Growth

Source: Seeking Alpha

O’Reilly’s 5-year CAGR revenue growth is more than double Advanced Auto Parts (AAP), the ‘cheapest’ stock by valuation.

Additionally, O’Reilly’s boasts the highest growth across nearly every other category, but most importantly, with levered free-cash-flow, which trounces its peers.

Profitability

Source: Seeking Alpha

And when it comes to profitability, O’Reilly’s dominates its peers across every category as well as returns on assets. Only Autozone has a higher return on total capital, and it’s by a smidge.

Our Opinion 10/10

While O’Reilly’s asks for a higher valuation, it provides 29 years of validation.

Its growth is outstanding, and its margins continue to be best-in-class. 

We’re excited about its international expansion and see this company as a fantastic example of what good management looks like.