Up 55,810%, Is O'Reilly Automotive Stock Still a Buy?

If you had invested $10,000 into O'Reilly Automotive (NASDAQ: ORLY) in 1993, you would have $5.59 million today. You read that correctly -- shares have risen by a jaw-dropping 55,810% in 30 years.

Typically, investors associate this type of massive growth with disruptive technology companies pioneering brand-new industries. But O'Reilly shows that sometimes the most boring companies can deliver the best long-term results. Let's look at whether this automotive parts retailer has what it takes to maintain its market-beating bull run.

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Betting on America

The United States has many advantages over other countries, but one of the most important is scale. With 340 million of some of the world's wealthiest consumers, American businesses can unlock tremendous amounts of value by offering relatively mundane goods and services to a large number of people. The automotive aftermarket industry is an example of how this can create sustainable shareholder value.

While auto parts aren't particularly exciting, they are vital because people need transportation to get to work, buy groceries, and function in society. This dynamic makes these items an essential good, right up there with food and shelter. People will spend the money to keep their cars on the road, even in a bad economy.

The auto parts industry can even benefit from recessions, because lower incomes mean that people are more likely to fix older cars instead of buying new ones. The average age of vehicles in the U.S. has increased steadily to a record 12.8 years (up from 11.4 years in 2014) -- possibly due to macroeconomic challenges like inflation. The older cars become, the more repairs are needed, leading to more business for companies like O'Reilly.

Slow but steady wins the race

O'Reilly has been around since 1957, and it is already a massive company with 6,416 locations across North America. Considering its size and maturity, investors shouldn't expect major growth. First-quarter sales increased by a relatively modest 4% year over year to $4.12 billion, while net income fell 2% to $538 million. However, the stock's value proposition is more oriented toward a consistent cash flow instead of expansion.

O'Reilly sends much of its earnings back to shareholders through aggressive share buybacks. In the first quarter, the company repurchased around $400 million worth of common stock in the latest round of a buyback program that has totaled a whopping $25.94 billion since 2011.

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By reducing the number of shares outstanding, O'Reilly increases the value of the remaining shares relative to the company's assets, cash flow, and earnings. Earnings per share (EPS) have risen consistently, even when net income hasn't. This is likely a big part of the reason why O'Reilly's stock has performed so well over the last decades.

Is O'Reilly Automotive still a buy?

O'Reilly has all the ingredients of a long-term winner. It serves a resilient, high-demand industry that can do well in any economy. And management returns its massive profits to shareholders in the form of buybacks. With that being said, after rising 55,810% over the last 30 years, O'Reilly's days of explosive stock price growth are almost certainly finished.

While buybacks are a great way to financially engineer EPS growth, they also represent capital that could have been reinvested into the company to create even more value. While O'Reilly stock remains a decent buy, I would prefer to see shares fall a little bit before considering a position. With a price-to-earnings (P/E) ratio of 33, shares look a little too expensive compared to the S&P 500 average of 28.

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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.