This extraordinary stock skyrocketed more than 600% in the last 10 years: time to buy?

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In the last decade, Nasdaq Composite It has been great for investors. The tech-heavy benchmark returned 310% during that time, including dividends. But there is one Retail stock In the index which has performed significantly better.

I’m talking. O’Reilly Automotive (NASDAQ: ORLY). Shares of the aftermarket auto parts seller have risen 619% since February 27, 2014, turning an initial cash of $10,000 into $71,880 today. Is now the time to buy this exceptional stock?

Boring at best.

High-flying tech companies with exposure. Artificial intelligence The trend is getting all the attention from investors these days. But don’t let that enthusiasm distract you from O’Reilly and his boring business model.

With 6,095 stores across the U.S., the company sells things like brakes, motor oil, and wiper blades to DIY and professional car mechanics. It may fly under the radar, but O’Reilly has a successful history of strong core performance.

Between 2018 and 2023, the company’s revenue and diluted earnings per share grew at compound annual rates of 10.6% and 19%, respectively. Even more impressive than these headline figures is how O’Reilly’s has been left almost untouched during the coronavirus pandemic, growing sales by 14% and net income by 26% in 2020.

The business made a ton Free cash flow To the tune of $2 billion last year. After reinvesting in growth initiatives, such as opening new stores or expanding distribution capabilities, management focuses on buying back a lot of stock. Over the past 10 years, the number of shares outstanding has fallen by 46%.

Protecting the downside

The industry O’Reilly operates in is highly fragmented, meaning there are many small and independent shops in comparison. Because customers feel a sense of urgency when it comes to finding the right parts to make sure their cars work properly, having an adequate inventory is absolutely essential. This is where O’Reilly’s scale can help it win other new customers, and help it gain market share over time.

In addition to a strong competitive stance and growth runway, O’Reilly is a recession-proof company. The 12-month period ended Dec. 31 was the 31st consecutive year the business reported an increase in same-store sales. This consistency speaks volumes about how sustainable the company is.

When economic times are favorable, consumer spending is strong, and interest rates are low, people drive more. This increases the wear and tear on their vehicles, which helps O’Reilly’s products to be in high demand.

On the other hand, in times of uncertainty or even recession, as many might consider an apt description of the current economic climate, consumers will refrain from purchasing new vehicles. With interest rates where they are today, that could certainly be the case. In this scenario, people will invest in extending the useful life of their existing cars, again supporting demand for O’Reilly.

Investors who own this business in their portfolio don’t have to spend a second wondering where the economy is headed. Instead, you can sleep well at night knowing the company will perform well no matter what the macro backdrop is.

Paying premiums

Thanks to the stock’s strong performance, investors are currently being asked to pay a price-to-earnings (P/E) ratio of 28.4. That’s a huge premium over the stock’s 10-year average of 22.9, and it’s more expensive. S&P 500P/E multiple of 23.

One can easily justify paying the price tag for what is clearly a fantastic business. However, there is also a valid argument that the estimate may be slightly overstated. Probably the best course of action. Dollar cost averaging in several months.

Should you invest $1,000 in O’Reilly Automotive now?

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Neil Patel and his clients have no positions in any stocks. The Motley Fool has no positions in any of the stocks mentioned. The Motley Fool has a Disclosure Policy.

This extraordinary stock skyrocketed more than 600% in the last 10 years: time to buy? Originally published by The Motley Fool.

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