O’Reilly Automotive (ORLY) Could Be 16% Undervalued As Fresh Earnings Arrive

Fresh third quarter earnings from O’Reilly Automotive (ORLY) give you new data to work with, as the auto parts retailer reported higher sales, profit, and earnings per share versus a year earlier.

Recent trading reflects that mixed picture. The 1 month share price return of 5.08% and a 1 day move of 0.69% around the earnings release suggest investors are warming to the update, even though the 1 year total shareholder return is still down 4.95%. The 5 year total shareholder return of 114.02% points to a much stronger longer run for O’Reilly Automotive.

Spot fresh earnings momentum at O’Reilly Automotive, then compare it with other retailers showing strong fundamentals using our hand picked list of solid balance sheet and fundamentals (24 results).

After that earnings beat and a 1 month gain of just over 5%, O’Reilly Automotive now trades roughly 15% below the average analyst target yet above one intrinsic value estimate. Where does fair value really sit in that spread?

Most Popular Narrative: 16% Undervalued

On the most followed narrative, O’Reilly Automotive screens as undervalued, with a fair value of about $107.80 against the latest $90.44 close. This difference creates a clear gap for you to investigate in more detail.

The main thing that has to go right is that O’Reilly Automotive converts its professional DIFM growth, private label strength, and planned store expansion into sustained market share gains without eroding its 51.5 to 52% gross margin outlook.

See why 23 investors see O’Reilly Automotive as 16% undervalued.

Result: Fair Value of $107.80 (UNDERVALUED)

Still, the thesis on O’Reilly Automotive leans heavily on smooth execution of the proposed US$10b NAPA deal and careful management of rising leverage.

Find out about the key risks to this O’Reilly Automotive narrative.

Another View On O’Reilly Automotive’s Valuation

The narrative fair value of $107.80 presents O’Reilly Automotive as attractively priced. A simple earnings multiple tells a different story. At a P/E of 27.6x versus a fair ratio of 18.1x, the stock screens as expensive, which raises a clear question: Is the story strong enough to justify paying a premium like that?

That richer P/E also runs above both peer levels at 19.4x and the wider US Specialty Retail group at 17x. If the market drifts closer to the fair ratio over time, investors holding today’s multiple could face meaningful valuation risk rather than upside, so position sizing becomes critical. See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Mixed signals on O’Reilly Automotive so far. If you want to move quickly and form your own take, start with the 2 key rewards and 2 important warning signs.

Looking For More Investment Ideas Beyond O’Reilly Automotive?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.

Companies discussed in this article include ORLY.

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