This underrated auto stock is extremely durable
With the current market volatility, investors looking for companies with a proven track record of resilience may find that O’Reilly Automotive (ORLY 0.29%) corresponds to the invoice. In this clip from “The Rank” on Motley Fool live, recorded on June 13Motley Fool contributor Tyler Crowe explains how O’Reilly Automotive has remained a sustainable business and continued to show resilience over the years.
Tyler Crowe: O’Reilly also has a small DIY business, so it’s a bit more repair-focused. You can actually walk in and have your car repaired rather than just selling and distributing parts. If we’re going to talk about free cash flow it doesn’t pay a dividend but instead it’s one of those companies that says I’m going to buy back all the shares as much as I can and then we check it out just because I I have it right in front of me. Over the past 10 years, O’Reilly Automotive has reduced its outstanding shares by 47%. Every stock is about half of it compared to where we were 10 years ago. It gives you an idea of what they did with that free cash flow, because it’s not capital. It’s not great capital. He intends to grow the business like it needs a lot of working capital because of your inventory of parts and things like that, but you’re not buying data centers for the net or anything or don’t do a lot of building from scratch. You rent in a mall and store auto parts. You don’t do a long development pipeline or anything like that. Here’s one of the things that I found very attractive, although it’s not the cheapest stock in the world right now, I think we’ll be kicking off trading in a second, but here’s the thing that I liked the most is which, at its current price, trades for a free cash flow yield, which is its annual free cash flow dividend by its market capitalization. It has a free cash flow yield of 6.4%. Just to make some comparisons, PayPal (PYPL 2.35%)even after its 75% drop, shows a free cash flow yield of 5.7%, A. O. Smith (AOS -0.90%) 5.5%. Just going back to its more traditional valuations, O’Reilly has a P ratio of 19, so not super expensive. I guess we’ll call it relatively cheap compared to the market. But overall I think there’s a lot of value in what they’re doing and it’s a very sustainable business.