Over the past six months, AutoZone’s stock price fell to $3,489. Shareholders have lost 13.4% of their capital, which is disappointing considering the S&P 500 has climbed by 5.4%. This may have investors wondering how to approach the situation.
Following the drawdown, is now a good time to buy AZO? Find out in our full research report, it’s free.
Why Are We Positive On AZO?
Aiming to be a one-stop shop for the DIY customer, AutoZone (NYSE: AZO) is an auto parts and accessories retailer that sells everything from car batteries to windshield wiper fluid to brake pads.
1. Solid Same-Store Sales Suggest 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).
AutoZone’s demand has been healthy for a retailer over the last two years. On average, the company has grown its same-store sales by a robust 2.7% 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.
AutoZone has been a well-oiled machine over the last two years. It demonstrated elite profitability for a consumer retail business, boasting an average operating margin of 19.2%. 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? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).
AutoZone’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 AutoZone ranks highly on our list. With the recent decline, the stock trades at 22× forward P/E (or $3,489 per share). Is now a good time to initiate a position? See for yourself in our comprehensive research report, it’s free.
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