ORLY Stock Study (6-29-26)

I recently did a stock study on O’Reilly Automotive, Inc. (ORLY, $89.55).

M* writes:

     > Founded in 1957, O’Reilly Auto Parts is one of the largest specialty
     > retailers of automotive aftermarket parts, tools, supplies, equipment,
     > and accessories, serving both DIY and professional customers. The
     > company operates nearly 6,600 stores across 48 US states, Puerto Rico,
     > Mexico, and Canada. In fiscal 2025, O’Reilly generated nearly $18 billion
     > in sales, with its dual market strategy yielding a balanced revenue mix,
     > split between retail DIY customers (49%) and professional service
     > orders (49%). The balance of its sales is derived from noncore categories,
     > including wholesale distribution to independent parts distributors,
     > heavy-shop equipment sales, and value-added services.

Over the past 10 years, this large-size company grows sales and earnings at annualized rates of 9.3% and 18.1%. Lines are up, mostly straight, and parallel. Value Line (VL) gives an Earnings Predictability score of 95. Shares outstanding decrease a noticeable 41.0% (5.7%/year).

Over the past 10 years, PTPM leads peer and industry averages while ranging from 17.6% in ’19 to 20.9% in ’21 with a last-5-year mean of 19.1%. ROE is N/A due to triple digit percentages—most recently negative (shareholder equity consistently falling due to heavy stock buybacks and increasing store count). Debt-to-capital is greater than peer and industry averages while increasing from 53.7% to 110% (’25) with a last-5-year mean of 116%.

Quick ratio is only 0.1 but interest coverage 14.9 (13.9) per M* (VL) who assigns “Wide” Economic Moat, gives an “Exemplary” rating for Capital Allocation, and an A grade for Financial Health (per BI website). VL gives a B++ grade for Financial Strength.

Negative shareholder equity breaks ROE and makes return on invested capital (ROIC) a better metric due to inclusion of debt along with equity in the denominator. In fact, ORLY is an exceptionally profitable business with a last-5-year mean ROIC over 40%. The company generates strong, consistent cash flows from the automotive aftermarket (per YF as cited by Google AI).

With regard to sales growth:

• YF gives YOY ACE 7.2% and 6.1% for ’26 and ’27 (based on 25 analysts).
• Zacks gives YOY ACE 6.9% and 6.0% for ’26 and ’27 (9 analysts).
• VL projects 6.2% per year from ’25-’30.
• CFRA projects 6.9% YOY and 6.5% per year for ’26 and ’25-’27, respectively.
• M* gives a 2-year ACE of 6.6% while projecting 7.3% per year from ’25-’30 in Equity Report.

My 6.0% per year forecast is below the range.

With regard to EPS growth:

• MarketWatch gives ACE 10.2% and 10.3% per year for ’25-’27 and ’25-’28, respectively (based on 31 analysts).
• Nasdaq.com gives ACE 10.6% and 9.6% per year for ’26-’28 and ’26-’29 (14 / 4 / 2 analysts for ’26 / ’28 / ’29).
• Seeking Alpha projects 4-year CAGR of 13.9%.
• Finviz gives 5-year annualized ACE of 10.4% (2).
• Argus projects 5-year CAGR of 9.0%.
• LSEG has LTG at 9.3%.
• YF gives YOY ACE 9.6% and 11.0% for ’26 and ’27, respectively (20).
• Zacks gives YOY ACE 9.0% and 11.4% for ’26 and ’27 along with 5-year annualized growth of 14.0% (14).
• VL projects 10.1% per year from ’25-’30.
• CFRA projects 12.8% YOY and 11.6% per year for ’26 and ’25-’27 along with 3-year CAGR of 11.0%.
• M* gives long-term ACE of 14.6% and projects 11.1% in Equity Report.

My 8.5% forecast is below the long-term-estimate range (mean of eight: 11.5%). Initial value is ’25 EPS of $2.97/share rather than 2026 Q1 EPS of $3.06 (TTM).

My Forecast High P/E is 22.0. Over the past decade, high P/E ranges from 20.7 in ’20 to 36.6 in ’25 with last-5-year mean of 28.6 and a last-5-year-mean average P/E of 24.3. I am near bottom of the range (only ’20 is less).

My Forecast Low P/E is 20.0. Over the past decade, low P/E ranges from 10.7 in ’20 to 26.5 in ’25 with a last-5-year mean of 19.9. I am forecasting [aggressively] just above the latter.

My Low Stock Price Forecast (LSPF) of $59.40 is default based on initial value from above: 33.7% less than previous close and 30.0% less than the 52-week low.

These inputs land ORLY in the SELL zone with a U/D ratio of 0.3. Total Annualized Return (TAR) is 1.9%.

PAR (using Forecast Average—not High—P/E) of 0.9% is unthinkable for an investment candidate. If a healthy margin of safety (MOS) anchors the study, then I can proceed based on TAR but even that falls way short of the risk-free rate (T-bills).

To assess MOS, I usually start by comparing my inputs with those of Member Sentiment (MS) but it’s not even worth doing given the low return numbers just reviewed.

With regard to valuation, PEG is 2.0 and 3.5 per Zacks and my projected P/E: overvalued (M* has 2.5). Relative Value [(current P/E) / 5-year-mean average P/E] is expensive at 1.2. “Quick and dirty” cash flow has stock undervalued by 9%. M* (CFRA) reports stock overvalued by 1% (47%).

Visual inspection to me looked encouraging along with a stock trading near its 52-week low. As it turns out, though, it has much farther to cut into recent years’ stock gains before it gets anywhere close to a buy point.

Per U/D, ORLY would be a BUY under $69/share. Given a forecast high price ~$98, the BetterInvesting® TAR criterion would be met [98.3 / ((14.87 / 100 ) +1 ) ^ 5] ~ $49 (no dividend).

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