Not everybody wants to retire early. But because there are no guarantees, having the means to do so is better than not having the option. Accomplishing this feat requires a high savings rate, above-average investment returns, or some combination of the two.
If your budget is tight, like those of most Americans, the good news is that there is still hope for early retirement if you are starting early enough.
There are plenty of investments that have the potential to continue being wonderful compounders. AutoZone (AZO 0.03%) is one such stock that comes to mind. Let's check up on the company's past performance, fundamentals, and valuation to see why it could remain a great option for investors in the years to come.
Strong total returns
Outside of the most prominent tech names, AutoZone has delivered one of the best investment outcomes of the last decade: A $10,000 investment made in the stock just 10 years ago would now be worth $60,000, an astounding 19.6% compound annual growth rate (CAGR). This is nearly double the $32,000 that the same investment amount put into the S&P 500 index would now be valued at with dividends reinvested, for a 12.4% CAGR.
These results were made possible by the fact that AutoZone expanded its store count by almost 2,000 stores from 2013 to more than 7,000 in the U.S., Mexico, and Brazil as of May 6, 2023. This is expected to nearly double sales from $9.1 billion in fiscal year 2013 to $17.4 billion in its fiscal year 2023, ending later this month. Thanks to significant share repurchases and improvements in operating efficiency, diluted earnings per share (EPS) will have soared nearly 400% in the last 10 years to the consensus 2023 mark of $130.85.
Image source: Getty Images.
The growth runway is lengthy
AutoZone's past results are all well and good. But if investors hope to generate strong returns moving forward, that brisk growth will need to continue. The good news is that AutoZone is growing its business the right way in both the U.S. and emerging markets. This explains how the company hasn't had to close a single store in the first three quarters of its fiscal year 2023.
AutoZone is now beyond the test phase of its operations in Brazil, which is why it anticipates an acceleration in annual store openings within the market to 20-plus each year.
Along with steady openings in the U.S. and Mexico, the company should be able to keep adding hundreds of stores to its footprint each year for the foreseeable future. This is especially true considering that analysts believe AutoZone's net debt to earnings before interest, taxes, depreciation, and amortization (EBITDA) ratio will remain below 2 in fiscal year 2023. Thus analysts are predicting 10% annual earnings growth from AutoZone over the next five years.
A fair valuation for a blue-chip stock
Up just 2% year to date, shares of AutoZone have stalled so far in 2023. Fortunately, this is keeping the stock's valuation in check, and could be setting it up for the next rally. AutoZone's forward price-to-earnings (P/E) ratio of 17.2 isn't unreasonable compared to the specialty retail industry average forward P/E ratio of 15.8. That is probably why analysts have a nearly $2,800 12-month average price target on the stock, which would represent an 11% upside from the current $2,500 share price.
For growth investors seeking low-double-digit annual total returns in the years ahead, AutoZone stock looks like a decent buy.
