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o\'reilly: the next leader of the auto parts industry?

by:ShenHao     2020-06-19
Anti-auto parts industry-cyclical.
When the economy is in trouble, people no longer buy new cars because even if they have more opportunities to break through, they would rather drive aging cars --
So buy spare parts.
Despite the strong performance of the US economy since 2011, GDP growth was 3.
The compound growth rate of 7% and the unemployment rate reached below 5%, and the performance of auto parts suppliers is still better than the S & P index.
So, what can explain the performance of the industry?
First, the average age of vehicles on American roads is 11.
This is a positive trend for the auto parts industry.
In fact, during the 17 million financial crisis, annual sales of new cars fell from 11 million to 2008.
Auto parts dealers are currently benefiting from the 2008 effect, but new car sales have just reached
As a result, growth in the average age of vehicles on American roads may slow.
Secondly, the emergence of online sales and the new trend of consumers practicing the \"hands-on\" way to reduce their car costs.
In fact, selling auto parts online makes the product category easier to get and understand for a broad audience.
As customers begin to learn how to repair their own cars or replace their parts, online tutorials help DIY grow faster.
We believe DIY will develop further in the next few years.
Third, the industry is re-establishing
Develop new habits for customers.
In fact, to avoid customers bypassing car mechanics, customers can now buy their spare parts online for their mechanics to repair and still benefit from lower prices than before.
Auto parts dealers promote this new trend by allowing customers to return goods within 1 year, so for customers who are not familiar with the industry, they can be flexibly encouraged to buy directly from auto parts dealers.
So we see this as a catalyst for positive growth in the industry.
In this growing industry, the three largest companies in the United States are \"Autozone (NYSE:AZO)
\",\" Advanced Auto Parts (NYSE:AAP)
And O\'Reilly (NASDAQ:ORLY)\".
The latter has expanded most in the past decade (
Especially through acquisitions)
From 2006 to 2015, revenue grew at a compound growth rate of + 23%.
Although O\'Reilly is currently the third largest chain in the United States after AZO and AAP, its market value is the largest.
In fact, in the past five years, Ollie shares have soared compared with their peers.
We will discuss whether the rally is still worth buying.
ORLY data from YChartsA quickly see where the company is coming from.
The O\'Reilly family was founded in Missouri in 1957, and until 1975, the company quickly developed into a $7 million business in the state with nine stores.
The public offering of Orey is critical as it helps the company to fund external growth to acquire a variety of well-performing auto parts dealers
Established in extended states such as Texas, California, Georgia, Ohio and Illinois.
Of the existing 40% stores, these states now account for 4700 of the total number of stores.
In addition, the company performed well in key financial indicators.
Rationalize inventory.
Of its kind, Ollie is the only company with sales growing faster than inventory.
In fact, the inventory on hand is the lowest compared to 246 days of AAP, which is 294 days.
Inventory costs are high, and if they grow faster than they sell, they increase the risk that the store will be filled with old products, thus preventing the company from ordering new products that customers are looking.
An extension of the number of days in stock may cause the company to increase product discounts, thereby reducing operating profit margins.
Inventory Optimization is critical in this powerful retail business.
At the same time, accounts receivable management is good, up 10% since 2006, the slowest among competitors, also represents the minimum percentage of assets confirming that the company has the ability to obtain cash from customers in a relatively short period of time.
Higher profitability ratio.
Over the past 5 years, ORLY has managed to increase EBIT margins from 13% to 19%, reaching the highest AZO level in the industry at 19% (
Only 90 bps in 5 years).
It turns out that Ollie management performed well because the acquisition was good for the company.
In fact, the profit ratio has increased by double digits in the past decade.
Look at the return on capital hired by the company (ROCE)
And return on investment capital (NASDAQ:ROIC)
, Management has established a record to effectively expand the company without affecting profitability.
Plenty of cash and low debt.
Cash conversion rate is the highest in the industry, 85%.
Even if EBITDA\'s profit margin increases significantly, the level of free cash flow increases faster, and EBITDA\'s free cash flow is still the highest compared to its peers.
Although net debt growth is the most due to intense M & A activity, when you compare it with EBITDA, the ratio of the company is very reasonable, at 0. 7x.
Management has performed its external growth plan brilliantly, reaching the point where investors demand and expect a repeat of history. Growth.
Investors are now demanding and demanding.
According to Bloomberg estimates, sales are expected to grow at a compound growth rate of + 7% over the next three years, and EBITDA will increase from 21% to 23%.
From the forecast P/E ratio in the next few years, the industry\'s highest growth rate will come from orerie, as the next two annual revenues are expected to grow by + 25%.
The price you pay for revenue growth is still falling because it\'s below 2x, but if you look back, it\'s the highest level since 2010.
Everything is not optimistic, we noticed that some traffic, such as the sales price has reached 3.
5 times, while the AZO value is only 2.
2 times and AAP 1. 3 times.
In addition, the book value is the highest among peers, more than 23 times the price, which is very expensive. Ratio of European links (NYSE:TTM)
The data summarized by YChartsIn, O\'Reilly is obviously the fastest-
Growing and healthy auto parts suppliers in the industry.
Given that we think industry growth is sustainable, O\'Reilly is the best place to capture that growth.
The price-earnings ratio is not at the highest level and is currently below the AAP, which provides room for future stock price increases.
Management has the ability to push the company to become the next market leader in the auto parts industry, and even if this is close to the company\'s historical high, there is reason to pay today\'s price.
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Investment period. ORLY PE Ratio (TTM)
Data from YChartsDisclosure: I/we did not mention the position of any stock, nor did we plan to start any position in the next 72 hours.
This article was written by myself and expressed my views.
I received no compensation (
In addition to Seeking Alpha).
I have no business relationship with any stock company mentioned in this article.
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