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Why O'Reilly Automotive Shares Crashed

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Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of O'Reilly Automotive (Nasdaq: ORLY  ) sank 18% on Wednesday after the auto parts retailer warned that its second-quarter results would come in below Wall Street expectations.

So what: O'Reilly shares have soared over the past year on strong earnings momentum, but management's disappointing guidance -- EPS on the low end of its prior forecast and lower same-store sales for the current quarter -- is forcing Mr. Market to sober up. In fact, the news seems to be triggering concerns over slowing growth in the do-it-yourself auto market space, sending stocks like Advance Auto Parts (NYSE: AAP  ) and AutoZone (NYSE: AZO  ) down today as well.

Now what: For the second quarter, management expects EPS in the lower end of its previously announced range of $1.13 to $1.17 and same-store sales growth of 2% to 2.5%, down from a prior view of 3% to 5%. "We saw improved comparable store sales results for the month of May; however, comparable store sales in June were below our expectations," CEO Greg Henslee said in statement. With the stock still up more than 40% from its 52-week low and trading at a not-so-cheapish P/E of 20, however, I'd wait until more of that risk is baked into O'Reilly before jumping in.

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy always gets a perfect score.

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  • Report this Comment On June 27, 2012, at 11:00 AM, ravens9111 wrote:

    I went long on the drop at 78.77. Probably won't hold for too long. My price target is $85 and then I am out. Set trailing stops along the way.

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Related Tickers

10/21/2016 4:00 PM
ORLY $275.56 Up +1.68 +0.61%
O'Reilly Automotiv… CAPS Rating: ****
AAP $141.93 Up +0.63 +0.45%
Advance Auto Parts CAPS Rating: ****
AZO $746.98 Up +0.71 +0.10%
AutoZone CAPS Rating: ***