O'Reilly Auto Parts Stock Skids 6.66% on Little News. Its $85 Share Price Is a Gift for GARP Investors.
O'Reilly Auto Parts Stock Skids 6.66% on Little News. Its $85 Share Price Is a Gift for GARP Investors..
It was a good day in the markets on Monday, as all the major indexes were in positive territory: the S&P 500 was up 0.72%, the Dow Jones Industrial Average gained 0.29%, the NASDAQ Composite was up 1.12%, and the Russell 2000 gained 0.45% on the day.
On the pitch, the U.S. got thoroughly trounced by a better Belgium squad, 4-1. Their World Cup run was good, but their tournament has come to an end. Belgium moves on to the quarter-finals to face Spain on Friday in Los Angeles. The final two quarter-finalists will be determined today with games in Atlanta and Vancouver.
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Yesterday's bearish price surprises for stocks with high share volumes included automotive parts retailer O'Reilly Automotive (ORLY). Its share volume was 15.34 million, about 63% higher than its 30-day average. Its options volume was unusually high at 18,469, about 6.8 times the 30-day average.
Not sure what all the fuss was about. O'Reilly doesn't report Q2 2026 earnings until July 29, and there was no new news about the Bloomberg report from last week that O'Reilly might bid $10 billion to buy Genuine Parts' (GPC) automotive business.
As a result of speculation, ORLY stock lost 6.66%, putting it on Barchart's bearish price surprises list. Down nearly 10% over the past 12 months, its valuation looks to be more reasonable than it's been in some time.
The question is whether it's shed enough to entice buyers back into the fray. With that in mind, I consider the pros and cons of buying ORLY stock at $85 and change.
Before O'Reilly's latest swoon, ORLY hadn't traded around the $85 level since December 2024. Further, its share price is down 22% over the past nine months, since hitting an all-time high of $108.71 in September 2025.
The one-year chart below shows that O'Reilly's current forward P/E ratio is 25.26x, about 27% less than the September 2025 multiple of 34.58x at its all-time high.
The two-year chart shows that, except for July 2024, its current multiple remains reasonable relative to the high and low over the past 24 months.
One financial metric that I use to consider a stock's valuation is the free cash flow (FCF) yield. In the 12 months ended March 31, O'Reilly's FCF yield is 2.4% based on an enterprise value of $78.22 billion and $1.87 billion in FCF. As of Sept. 30, 2025, at the all-time high, ORLY had an enterprise value of $99.53 billion, FCF of $1.57 billion, and an FCF yield of 1.6%.
Normally, I'd toss a stock with a 2.4% yield aside -- I consider FCF yields between 4% and 8% to be fair value (you're not overpaying), above 8% to be undervalued, and below 4% to be overvalued -- but it's important to look at its FCF yield from a historical perspective before doing so.
O'Reilly generated $2.76 billion in free cash flow in 2021, the highest in its history. That's a 20.7% margin. That's double what it is today.
The big difference is the company's capital expenditures, which have increased by 154% since 2021. There are several reasons for this.
First, it's opening many new stores. In 2025, it opened 207 new stores across 37 states, Puerto Rico, and Mexico. In 2026, it expects to open 230 at the midpoint of its guidance. It finished Q1 2026 with 6,644 stores, including 6,495 in the U.S., 121 in Mexico, and 28 in Canada.
All of these new stores cost money to open. Since the end of 2021 (13 quarters), it has added 860 net new stores. That's an average of 66 per quarter. The company typically spends around $3 million to open a new store built from the ground up. That's about $200 million a quarter.
Secondly, it's building out its distribution center network to keep the stores inventoried. The most recent to open was in December 2025 in Stafford County, Virginia. The 550,000-square-foot DC will supply customers in the Mid-Atlantic region. It now has 32 large DCs across all three countries where it operates, with two more on the way in Texas and an expansion of a DC in Florida. It's all part of going where the customers are.
