Stock Analysis

Does O'Reilly Automotive (NASDAQ:ORLY) Deserve A Spot On Your Watchlist?

NasdaqGS:ORLY
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It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss-making companies are always racing against time to reach financial sustainability, so investors in these companies may be taking on more risk than they should.

If this kind of company isn't your style, you like companies that generate revenue, and even earn profits, then you may well be interested in O'Reilly Automotive (NASDAQ:ORLY). Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide O'Reilly Automotive with the means to add long-term value to shareholders.

Check out our latest analysis for O'Reilly Automotive

How Quickly Is O'Reilly Automotive Increasing Earnings Per Share?

The market is a voting machine in the short term, but a weighing machine in the long term, so you'd expect share price to follow earnings per share (EPS) outcomes eventually. So it makes sense that experienced investors pay close attention to company EPS when undertaking investment research. It certainly is nice to see that O'Reilly Automotive has managed to grow EPS by 25% per year over three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. O'Reilly Automotive maintained stable EBIT margins over the last year, all while growing revenue 9.3% to US$14b. That's encouraging news for the company!

In the chart below, you can see how the company has grown earnings and revenue, over time. To see the actual numbers, click on the chart.

earnings-and-revenue-history
NasdaqGS:ORLY Earnings and Revenue History February 3rd 2023

The trick, as an investor, is to find companies that are going to perform well in the future, not just in the past. While crystal balls don't exist, you can check our visualization of consensus analyst forecasts for O'Reilly Automotive's future EPS 100% free.

Are O'Reilly Automotive Insiders Aligned With All Shareholders?

Since O'Reilly Automotive has a market capitalisation of US$50b, we wouldn't expect insiders to hold a large percentage of shares. But we are reassured by the fact they have invested in the company. Notably, they have an enviable stake in the company, worth US$519m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.

Is O'Reilly Automotive Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into O'Reilly Automotive's strong EPS growth. This EPS growth rate is something the company should be proud of, and so it's no surprise that insiders are holding on to a considerable chunk of shares. Fast growth and confident insiders should be enough to warrant further research, so it would seem that it's a good stock to follow. Before you take the next step you should know about the 3 warning signs for O'Reilly Automotive (1 is significant!) that we have uncovered.

There's always the possibility of doing well buying stocks that are not growing earnings and do not have insiders buying shares. But for those who consider these important metrics, we encourage you to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

Valuation is complex, but we're helping make it simple.

Find out whether O'Reilly Automotive is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.