AutoZone Vs. O’Reilly Automotive

Originally posted on https://financhill.com/blog/investing/autozone-vs-oreilly-automotive

From mutual funds to real estate investment, there are a variety of ways to build your wealth. However, the most successful investors will tell you that playing the stock market is their top choice for maximizing returns. Other types of investments may carry less risk, but that means the rewards are usually also smaller.

Predicting which individual equities will increase in value is difficult, but when you choose well, your profits can be substantial. Careful research into the financial health of the companies you are considering is just the first step. Making smart investments also requires a deep understanding of specific industry opportunities and challenges, as well as the direction of the market as a whole.

When times are tough financially, some industries thrive. Auto repair companies fall into that category.

People with less money to spend are more likely to repair their current vehicles instead of purchasing new ones, and more car owners are handling basic repairs themselves. This puts auto repair companies in an excellent position for future profitability.

Better still, it may be possible to purchase stock at bargain prices, because these companies haven’t gotten a lot of attention from investors historically.

From an investment perspective, the auto repair industry has a high ranking when compared to other industries. In 2018, it ranks in the top 10 of all industries. This factor should put auto repair stock on your short list for potential investment. If you are considering investment in an auto repair company, these are key points to consider when choosing individual stocks:

• How much stock is held by the company’s senior leaders? When those who are making financial decisions for the business own a significant amount of stock themselves, it is a good sign that the future is bright.
• What makes the company special? Invest in organizations that stand out from their competitors, whether it is for their pricing, their convenience, their product line, or their customer service. The only trick is to be sure that this competitive advantage can be sustained over time. For example, if the business you choose attracts customers through low prices, look into how the company keeps prices down. Is that pricing strategy going to last long-term?
• Is the company growing? Check out where and how the business spends its money. Is it reinvesting profits in the business? Of course, when you buy stock, it is nice to get dividends, but future value depends on putting money into the maintenance and growth of the organization. Look for companies that are opening new locations and updating infrastructure based on new technology. Innovation is important to keeping competitive advantages and creating profits for shareholders.

AutoZone [ticker symbol: AZO] is a leader in the retail auto repair industry, selling replacement parts and accessories in the United States, Puerto Rico, Mexico, and Brazil.

The company is also home to a division exclusively dedicated to producing, maintaining, and selling the diagnostic and repair information software that is critical to the industry.

AutoZone is a solid choice based on three important financial ratios:

• Price to Earnings Ratio (P/E) – This is an indication of how the price of a stock compares to its earnings. AutoZone’s P/E is at 15.7, which is low compared to the market average of approximately 19.9. Compared to other auto repair industry stocks, it is very low – the industry average is 20.2. This means there is potential for growth in the value of AutoZone stock.
• Price/Sales Ratio (P/S) – This figure compares the price of a stock to overall company sales. For the purposes of choosing an investment, lower is better. AutoZone’s P/S is 1.9, which is low compared to the market average of approximately 3.5.
• Earnings – AutoZone has met or exceeded its earnings estimates in recent quarters, which is always a good sign that a business is strong.

AutoZone does not pay dividends to shareholders, which can be disappointing for investors with a specific income strategy in mind. However, AutoZone reinvests profits by buying back shares, which means if you own shares, they may increase in value due to lower supply of total shares outstanding.

O’Reilly Automotive [ORLY] may not be as well-known in the auto repair industry, but it is nonetheless another leader.

This company operates its retail stores exclusively in the United States, and it focuses on selling automotive aftermarket parts, tools, equipment, supplies, and accessories to both an amateur and professional clientele.

Investors recently took an interest in purchasing O’Reilly, and the price jumped up rather dramatically. Some analysts believe that this stock is now more expensive than it should be, but others think there is still plenty of room for growth.

Those who believe the stock is overvalued are encouraging investors to wait until the price reflects the company’s true value. Those who expect significant profits in upcoming quarters encourage investors to buy now, as the price may not come down for quite some time.

Choosing the best investment is a personal decision based on your investment strategy and your individual risk tolerance. With that said, most analysts lean towards AutoZone vs O’Reilly.

One of the biggest reasons for this preference is AutoZone’s international expansion. A larger global footprint means more potential for growth long-term.