Stock Analysis

Is O'Reilly Automotive, Inc. (NASDAQ:ORLY) Potentially Undervalued?

NasdaqGS:ORLY
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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$873 and falling to the lows of US$771. 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$820 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.

See our latest analysis for O'Reilly Automotive

What Is O'Reilly Automotive Worth?

According to my valuation model, the stock is currently overvalued by about 25%, trading at US$820 compared to my intrinsic value of $656.31. This means that the buying opportunity has probably disappeared for now. In addition to this, it seems like O'Reilly Automotive’s share price is quite stable, which could mean two things: firstly, it may take the share price a while to fall back down to an attractive buying range, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

Can we expect growth from O'Reilly Automotive?

earnings-and-revenue-growth
NasdaqGS:ORLY Earnings and Revenue Growth March 13th 2023

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. O'Reilly Automotive's earnings growth are expected to be in the teens in the upcoming years, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has well and truly priced in ORLY’s positive outlook, with shares trading above its fair value. At this current price, shareholders may be asking a different question – should I sell? If you believe ORLY should trade below its current price, selling high and buying it back up again when its price falls towards its real value can be profitable. But before you make this decision, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on ORLY for some time, now may not be the best time to enter into the stock. The price has surpassed its true value, which means there’s no upside from mispricing. However, the optimistic prospect is encouraging for ORLY, which means it’s worth diving deeper into other factors in order to take advantage of the next price drop.

So while earnings quality is important, it's equally important to consider the risks facing O'Reilly Automotive at this point in time. For example, O'Reilly Automotive has 3 warning signs (and 1 which is significant) we think you should know about.

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.

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.