O'Reilly Automotive Inc. (NASDAQ:ORLY), AutoZone, Inc. (NYSE:AZO), The Pep Boys - Manny, Moe & Jack (NYSE:PBY), and Advance Auto Parts, Inc. (NYSE:AAP) may all technically be in the same business, but they're hardly in the same proverbial boat. In fact, their performances - sales and earnings - are oddly disparate. Which among PBY, AZO, ORLY, and AAP are the winners and the losers, and perhaps more important, why? The question can at least partially be answered by a chart, and what the chart can't tell us about each, the narrative can.
Kudos to O'Reilly Automotive for broadly growing the bottom line since 2009. And, congratulations to ORLY shareholders who've been willing to stick with it for the long haul - you're now up 543% since the recessionary bottom was hit in late-2008. Nobody saw it coming then (well, very few), but that advance has simply been stunning. The only problem here is, shares are priced at a pretty frothy 24.6 times the company's trailing earnings. Still, O'Reilly offers a consistency most other companies outside of the industry don't even dream of.
As consistent and impressive as ORLY has been since 2008, AutoZone has been even more consistent and impressive. Better still, from a valuation standpoint, the trailing P/E of 17.8 that AZO currently boasts is considerably lower than that of O'Reilly Automotive's. Granted, AutoZone shares are still a little overbought, with a big chunk of its 400% gain since 2008's low coming in just the past six months. Nevertheless, AutoZone may well be "Mr. Consistency" within the auto parts retailing arena.
The Pep Boys - Manny, Moe & Jack
Whereas AutoZone, Inc. may be the picture of consistency, The Pep Boys - Manny, Moe & Jack is the poster child for inconsistent results.... with the occasional loss. In fact, the company's been so inconsistent, there's almost no point in talking about the valuation. The only point of looking at the chart is to underscore the notion that PBY is an inconsistent mess.
Advance Auto Parts
Up until the past year, Advance Auto Parts was almost as consistent O'Reilly Automotive, and perhaps a little more reliable than AutoZone. Beginning in 2013, however, AAP hit a wall it's yet to be able to hurdle. Earnings stagnated, and may even be waning. The stock's continued to rise, however, leading to a sizeable trailing P/E ratio of 22.7. But how did the stock keep rolling even though earnings haven't? Advance Auto Parts investors are most likely eyeing what's supposed to be a huge improvement in sales and earnings. Per-share profits should be up 41% this year and up 10.8% next year. Revenue is projected to grow 51.4% and 2.0%.
Putting it All Together
The question that immediately pops up: Why is The Pep Boys - Manny, Moe & Jack such a train wreck? The answer is, predominantly, tires. Selling (and mounting, and disposing of) tires is not only a complicated venture, but prices of rubber - and therefore prices of tires - are highly volatile. That volatility has absolutely made life miserable for PBY, but with no end in sight to rubber's erraticness, the stock is likely to remain a wild mess.
As for Advance Auto Parts, the bullish sales and earnings outlooks are probably plausible, but not worth the risk considering there are two close alternatives - ORLY and AZO - that are on the same basic growth path, but somehow managed to sidestep whatever proved to be a stumbling block for AAP.
On that note, O'Reilly Automotive Inc. and AutoZone, Inc. are the winners they appear to be within this group. AutoZone is the stronger value of the two right now, however, and not quite as overbought as O'Reilly. Newcomers looking for an auto parts "play" may want to start their due diligence with AZO.
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