Over the past six months, O'Reilly’s shares (currently trading at $92.14) have posted a disappointing 14.3% loss while the S&P 500 was down 1%. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.

Given the weaker price action, is this a buying opportunity for ORLY? Find out in our full research report, it’s free.

Why Is ORLY a Good Business?

Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ: ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.

1. Surging Same-Store Sales Show Increasing Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

O'Reilly’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.8% per year.

2. Operating Margin Reveals a Well-Run Organization

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

O'Reilly’s operating margin has more or less stayed the same over the last 12 months , averaging 19.5% over the last two years. This profitability was elite for a consumer retail business thanks to its efficient cost structure and economies of scale. This result isn’t surprising as its high gross margin gives it a favorable starting point.

3. Stellar ROIC Showcases Lucrative Growth Opportunities

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

O'Reilly’s five-year average ROIC was 42.5%, placing it among the best consumer retail companies. This illustrates its management team’s ability to invest in highly profitable ventures and produce tangible results for shareholders.

Final Judgment

These are just a few reasons why we think O'Reilly is a great business. With the recent decline, the stock trades at 28.2× forward P/E (or $92.14 per share). Is now the right time to buy? See for yourself in our full research report, it’s free.

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