Shares of O'Reilly Automotive (ORLY -2.28%) have risen more than 200% over the past five years. They have gained over 400% over the past decade. And over the past year alone the stock has rallied 25%, handily beating the S&P 500 index's (^GSPC 1.11%) gain of just under 10%. Given that stellar stock price performance, it is understandable that investors might be looking at the auto parts retailer.
But is O'Reilly Automotive a millionaire-maker stock? Here's some things to consider before you buy.
What does O'Reilly Automotive do?
As noted, O'Reilly Automotive is an auto parts retailer, selling vehicle supplies to consumers and professionals. The auto sector is a mature industry, so competition is pretty intense. This is noteworthy because there are really only two ways to grow a retail store business. You can either increase sales at the stores you currently operate, known as same-store sales, or you can open new stores. Both, basically, have to pull customers from other competitors.
Image source: Getty Images.
With regard to same-store sales, O'Reilly has been doing reasonably well lately. Same-store sales in the first quarter of 2025 rose 3.6%. On the second point, the company opened 38 new stores. The combination led to a top-line advance of 4%. Earning per share rose 2%, but there's a little nuance here. Net income was down 2%; the only reason earnings per share grew was because the company's share count fell thanks to a stock buyback.
The big problem right now is rising costs, particularly on the employee front. That inflation is hampering the company's growth and investors have noticed, with the shares having pulled back a little from recent highs. That said, O'Reilly isn't pulling back on its long-term growth aspirations, with plans to open as many as 210 new locations in 2025. It believes that same-store sales will increase between 2% and 4%. O'Reilly has executed well for years, so there's no reason to believe it can't achieve those two goals. But the need to rely on a stock buyback to spur earnings growth in the first quarter isn't a positive sign.
Is O'Reilly Automotive worth buying now?
The big problem with O'Reilly Automotive right now is that it is historically expensive. To put some numbers on that, the company's price-to-sales and price-to-earnings ratios are both well above their five-year averages. And while the stock price has pulled back of late, the decline is less than 10% and that modest drawdown is from the stock's all-time high.
So investors looking at O'Reilly Automotive today have to consider both the business and the price they are paying for that business. To paraphrase famed value investor Benjamin Graham, even a great company can be a bad investment if you pay too much for it. Right now, O'Reilly Automotive looks like it is facing some business difficulties in a very competitive industry and, at the same time, the stock appears to still be quite expensive.
In other words, it is hard to suggest that buying O'Reilly Automotive today will help to quickly build your nest egg to seven figures. That's not to suggest that the company can't work through the current headwinds, leading to the stock heading higher again.
But there could be a period of weakness here as management deals with the cost issues it is facing. You might have to live through an even deeper pullback if you buy it now, noting that the chart above shows that 25%, or larger, drawdowns are pretty common for O'Reilly Automotive's stock.
O'Reilly is a strong competitor, but no company is perfect
All in, O'Reilly Automotive is a well-run retailer with a stock that still appears to be pricing in a lot of good news. That remains true even as the company is facing cost pressures that have limited its earnings growth. If the company continues to execute as well as it has historically, the stock could continue to be a strong performer over the long term. And that would make it worth buying and holding.
However, if you aren't willing to sit through a deep pullback, like the ones that have commonly happened in the past, you will probably be better off waiting. A pullback of 25%, more than twice the current drawdown, would be a better entry point for most investors.
