Is O'Reilly Automotive Stock a Buy After Its 15-for-1 Stock Split?

If you showed me a picture of O'Reilly Automotive's (NASDAQ: ORLY) stock performance since its initial public offering (IPO) in 1993, I would assume I was looking at a disruptive tech stock instead of an auto parts retailer. With shares up roughly 57,000% since launch, the company has delivered life-changing long-term returns to its early shareholders.

It's no surprise, then, that O'Reilly is turning to a 15-for-1 stock split to keep its share price manageable and liquid for smaller investors who may be intimidated by the current $1,371 price tag. Let's dig deeper to see if this decision is a sign to bet on the company's future success.

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An overcover cash cow

While many investors focus on flashy tech stocks that promise innovative solutions to "problems" we didn't even know we had, those in the know have made fortunes by betting on the more boring businesses that shape our everyday lives. Alongside home improvement stores, auto aftermarket retailers like O'Reilly have outperformed the market for decades.

O'Reilly's business durability is key to its sustainable success. Auto repairs are an essential good in the U.S., right up there with clothing and shelter. People need reliable transportation to participate in society. In many places, if someone's car breaks down, they can't get to work, buy groceries, or even take their kids to school. This dynamic gives auto parts retailers a steady source of demand that is resistant to economic downturns and that tends to grow as the U.S.'s vehicle fleet ages.

The company has also taken steps to maximize its potential with exemplary customer service and aggressive expansion, through a combination of new store openings and the buyouts of rivals such as Montreal-based Groupe Del Vasto in 2023, which gave it a foothold in the Canadian market.

Why the stock split?

On March 13, O'Reilly's board of directors approved a 15-for-1 stock split that will increase the number of shares outstanding while keeping its market cap the same. Management says it is doing this because it wants to share its success with employees by making it easier for them to buy ownership in the company without having to rely on fractional shares.

Stock splits also benefit outside investors by making a stock seem more appealing and easier to trade, even if its fundamentals remain the same.

Psychology plays a significant role in financial markets, and according to Bank of America analyst Jared Woodard, stock splits have tended to correlate with better returns over time, even when the S&P 500 struggled. That said, investors should prioritize fundamentals, because that is where the most sustainable equity value will come from.

Image source: Getty Images.

O'Reilly's first-quarter revenue grew 4% year over year to $4.14 billion, driven by new store openings and modest organic growth. While this might not seem like a huge amount, investors can expect consistent expansion because of the industry's consumer defensive nature and the aging of the U.S. vehicle fleet. That fleet's average age now stands at a record high of 12.6 years, a figure that has continued to trend upward over the last decade.

The effects of other factors, like President Donald Trump's automotive tariffs, are difficult to predict. But so far, the signs look positive. In April, O'Reilly raised its annual profit forecast to $42.90 to $43.40 per share (6% growth at the midpoint), thanks to people maintaining their older cars in anticipation of future price hikes that might make newer rides less accessible.

Is O'Reilly Automotive a buy?

O'Reilly Automotive is a great company because of its defensive business model and ability to withstand macroeconomic uncertainties like potential recession or tariffs. With a forward price-to-earnings (P/E) multiple of 31, shares trade at a slight premium over the S&P 500 average of 28, but this looks justified by the company's solid fundamentals.

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Will Ebiefung has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.