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The Pullback in O’Reilly Automotive Stock Is an Opportunity

Louis Navellier

O’Reilly Automotive Inc (NASDAQ:ORLY) is the biggest of the brick and mortar DIY automotive supply stores in the nation. So, it was a bit of shock in late April when it announced that Q1 was weaker than expected. Revenue and earnings were below expectations and even low for the company’s projections, which are usually conservative (hitting the middle of range or higher is the usual expectation).

The Pullback in O’Reilly Automotive Stock Is an Opportunity

Source: JJBers via Flickr (modified)

And ORLY stock had been on a run for a while, up nearly 40% for the past 12 months at that point. Now, the stock is off about 10%. Still up 30% in the past year, but it has certainly been dinged.

The company has noted that some of the problem was that in its core region — the Midwest, South and Southwest — rain on the weekends dampened its customers’ ardor for shop work. Cold and snow usually boosts business, but rain has the opposite effect. Also, an extra Monday and one less Sunday in the quarter didn’t help matters for ORLY stock.

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Generally, weather-related excuses, or one weekend day here and there shouldn’t throw your whole quarter off. But they are valid reasons up to a point. And the numbers weren’t horrible, they were just somewhat disappointing.

Then you add to the weak Q1, projections for a weaker Q2, and you wonder whether there’s something more afoot.

But if you take a look at the macro picture, car and truck sales are slowing; consumer debt is higher than it was in 2008; and wages are rising slightly. Maybe some people can afford to take their cars to the shop to have them worked on now, but the trend for DIY work is still in place.

And as cars get older, they need more parts. Like death and taxes, this is an unavoidable reality to owning durable goods, so O’Reilly Automotive stock is still in good long-term shape.

While there is still competition from other brick and mortar retailers like Advanced Auto Parts (NYSE:AAP) and AutoZone (NYSE:AZO), there are also online competitors.

For now, the other brick and mortar operations are growing well and they don’t really overlap much at this point, which is amazing since ORLY has 5,300 stores in 47 states around the U.S.

The online parts stores aren’t too much competition since it’s easier to grab wiper blades and oil in a store than having it shipped. And the more complex parts can be easier to order correctly at a store or online with the convenience of in-store exchanges or returns for the wrong part.

ORLY stock gets an overall A rating from my Portfolio Grader, which indicates that while its current fundamentals may not be great, there’s plenty of interest in the stock for the long term now that it’s sold off a bit.

Louis Navellier is a renowned growth investor. He is the editor of four investing newsletters: Growth Investor, Breakthrough StocksAccelerated Profits and Platinum Growth. His most popular service, Growth Investor, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.

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