The market for automotive parts and accessories retailers is as much a traffic jam as ever with Advanced Auto Parts (NYSE:AAP), Pep Boys (NYSE:PBY), Wal-Mart (NYSE:WMT), Genuine Parts (NYSE:GPC), and others all trying to get a piece of the "Pimp Your Own Ride" action. In such a competitive industry, prospective investors must wonder whether a worthy investment remains. With large blocks of AutoZone (NYSE:AZO) shares being scooped up, has a market-beating stock been found?
Two AutoZone buyers in particular catch the eye. First is none other than AutoZone itself. With a stock repurchase program currently in effect, the company has the potential to buy back $3.9 billion of its own shares. Most of the buying has transpired, but with $225 million available for use, plenty of opportunity remains. Of interest to investors is that from May 9 to Aug. 25, AutoZone bought more than 3.9 million shares at an average cost of $80.56 per share.
The second purchase worthy of mention comes from Edward Lampert's ESL Investments. Eddie Lampert has established a strong investing track record -- the merger between Kmart (NASDAQ:KMRT) and Sears (NYSE:S) is a recent highlight. He's also becoming something of a high-profile guru figure, with a recent BusinessWeek cover asking whether he's the next Warren Buffett.
ESL Investments established a significant stake in AutoZone with large blocks purchased as recently as September, when the stock was trading in the mid-$70s. Given its recent close of $86.60, investors may gain some confidence buying in at this level.
What's attracting the buying? On the surface, there doesn't appear to be anything about AutoZone screaming that this is a flashy ride. With its fiscal 2004 net sales and net earnings up 3.3% and 9.4%, respectively, compared with 2003, the company doesn't appear to be a benchmark-breaking hot rod.
Opening up the hood, however, we find a street racer in the form of its rubber-burning return on equity (ROE) -- its trailing 12-month ROE currently sits at a supercharged 151.5%. Put this together with strong net profit margins of 10%, an earnings per share increase of 22.8% year over year, a current year P/E of 11.9, and an enterprise value-to-structural free cash flow ratio of 17.8, and this stock is looking more like a high-revving market beater.
With management continuing to create value for a stock that is already reasonably priced, it is no wonder AutoZone is attracting some serious buying. Likewise, this stock should remain a strong candidate on a prospective investor's watch list.
Fool contributor Jeremy MacNealy does not own shares in any of the companies mentioned.
