Shareholders of AutoZone would probably like to forget the past six months even happened. The stock dropped 22.3% and now trades at $2,886. This may have investors wondering how to approach the situation.
Following the pullback, is now an opportune time to buy AZO? Find out in our full research report, it’s free.
Why Are We Positive on AutoZone?
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 a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
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 3.2% per year.
2. Operating Margin Reveals a Well-Run Organization
Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.
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%. 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).
AutoZone’s five-year average ROIC was 40%, 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 AutoZone is a high-quality business. With the recent decline, the stock trades at 17.4× forward P/E (or $2,886 per share). Is now a good time to initiate a position? See for yourself in our full research report, it’s free.
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