In This Article:
Key Points
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Sizable stock buybacks have propelled a meaningful reduction in this company’s outstanding share count.
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An impressive streak of same-store sales growth underscores the durable demand this business experiences.
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Shares are expensive on a historical basis, but that might not deter bullish investors.
Investors looking to find businesses that can outperform the S&P 500 index over the long term should look at those that have done just that historically. The thinking is that companies that have performed well in the past are likely in a good position to continue doing so.
In the past five years, one retail stock has climbed 238% (as of May 9). Even this year, it keeps crushing the market, up 15%, while the S&P 500 has fallen 4%. This business is doing something right to warrant such enthusiasm from the investment community.
Should you buy shares in May and hold them forever?
Steady financial growth
If investors aren't already, it's time to get familiar with O'Reilly Automotive (NASDAQ: ORLY). The retail chain sells aftermarket auto parts through a large network of stores scattered across the country (with a presence in Canada and Mexico as well). It targets both do-it-yourself customers and professional mechanics.
One reason to like this business is the steady financial performance over the years. Between 2014 and 2024, revenue increased at a compound annual rate of 8.8%. What's more, diluted earnings per share have risen at a yearly clip of 18.7%, demonstrating the shareholder value that has been created.
That bottom-line figure is supported by management's superb capital allocation strategy that involves aggressive stock buybacks. In the past decade, O'Reilly's outstanding share count has shrunk by 45%.
Durable demand continues
O'Reilly has reported same-store sales (SSS) growth for 32 consecutive years. This is one of the most important metrics for a retail enterprise. The fact that this company has such a stellar track record highlights the durable demand it registers. Increasing SSS, despite external conditions, might significantly ease investors' concerns about the economy.
Let's say the U.S. enters a recession later this year, something many are expecting. This will likely pressure new car purchases. However, people still need to get around, which will add wear and tear to vehicles. O'Reilly's business will benefit as it always has.
O'Reilly should experience solid growth prospects for the foreseeable future. The average age of vehicles on the road, at 12.5 years in 2023, has slowly climbed over time. The company loves to see this, as it means consumers are extending the useful lives of their cars and need the parts and supplies to keep them running properly.