O'Reilly Automotive Executes Major Stock Split: What Investors Should Know

Investors are often drawn to companies whose stocks have delivered strong gains over time. However, as a company's share price climbs, it can become financially challenging for smaller investors to buy whole shares. When this happens, a stock split can make the stock more affordable and accessible to a broader pool of investors.

Understanding Stock Splits and Their Impact

A stock split, approved by a company's board and shareholders, lowers the price per share while simultaneously increasing the number of shares available. This doesn’t change the company's overall value or fundamentals, but it can generate renewed investor interest and make the shares easier to purchase for those with limited capital.

On March 13, O'Reilly Automotive (NASDAQ: ORLY) approved a 15-for-1 stock split, reducing its per-share price from roughly $1,350 to around $90 as of June 10, 2024. Although the share count increased by a multiple of 15, O'Reilly’s total market value remained the same. It's important to remember that a stock split doesn't alter the company’s business performance, financial health, or growth strategy.

O'Reilly's Impressive Track Record

O'Reilly Automotive has been a market standout over the years. In the past decade alone, its stock has surged 509%, easily outpacing the S&P 500 index. Since its initial public offering in 1993, O'Reilly’s shares have soared by a staggering 56,350%, making it one of the most successful companies for long-term investors.

As of March 31, the company operates 6,416 stores, with the majority located in the U.S., supplying aftermarket auto parts such as brakes, batteries, and motor oil. Demand for O'Reilly’s products tends to be stable in both robust and challenging economic times, as people often continue to maintain vehicles they rely on for daily life, regardless of economic conditions.

Financial Performance and Shareholder Value

O'Reilly continues to deliver solid financial results, generating $2 billion in free cash flow in 2024 and $455 million in the first quarter alone. The company is known for its shareholder-friendly policies, including consistent share buybacks, which have reduced its outstanding share count by 24% over the past five years and helped boost earnings per share.

Is Now the Time to Buy O'Reilly Automotive?

Despite the strong business fundamentals, potential investors should note O'Reilly’s current equity valuation. The stock trades at a price-to-earnings (P/E) ratio of 33.3, which is 38% higher than its 10-year average. As a result, it might be prudent for investors to wait for a pullback before buying. However, for those optimistic about O'Reilly’s future, a dollar-cost averaging strategy could be a smart way to gradually acquire shares following the stock split.

This content is for informational purposes only and does not constitute financial advice.