Today we're going to take a look at the well-established O'Reilly Automotive, Inc. (NASDAQ:ORLY). The company's stock saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$483 and falling to the lows of US$436. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether O'Reilly Automotive's current trading price of US$454 reflective of the actual value of the large-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at O'Reilly Automotive’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.
What is O'Reilly Automotive worth?
The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. I’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 20.12x is currently trading slightly above its industry peers’ ratio of 19.71x, which means if you buy O'Reilly Automotive today, you’d be paying a relatively reasonable price for it. And if you believe that O'Reilly Automotive should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Is there another opportunity to buy low in the future? Since O'Reilly Automotive’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.
What kind of growth will O'Reilly Automotive generate?
Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a relatively muted profit growth of 4.6% expected over the next couple of years, growth doesn’t seem like a key driver for a buy decision for O'Reilly Automotive, at least in the short term.
What this means for you:
Are you a shareholder? ORLY’s future growth appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at ORLY? Will you have enough conviction to buy should the price fluctuate below the industry PE ratio?
Are you a potential investor? If you’ve been keeping an eye on ORLY, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the positive growth outlook may mean it’s worth diving deeper into other factors in order to take advantage of the next price drop.
Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. For example - O'Reilly Automotive has 2 warning signs we think you should be aware of.
If you are no longer interested in O'Reilly Automotive, you can use our free platform to see our list of over 50 other stocks with a high growth potential.
This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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