O’Reilly Automotive Inc (ORLY)

Conclusion

O'Reilly Automotive operates as a retailer and supplier of automotive aftermarket parts, tools, supplies and accessories in the United States, Puerto Rico, Mexico and Canada. The share price is 89.79 USD as of 2026-11-09, giving a market capitalisation of 72.0 billion USD.

The verdict is overvalued. The current P/E of 26.6x sits 27.6% above its ten-year median of 20.8x, and EV/EBITDA of 19.7x sits 28.9% above its median of 15.3x. Price to free cash flow of 34.3x is 57.7% above its median of 21.7x. The DCF gives 59.55 USD per share at a discount rate of 8.87%, and the fair value from historical multiples is 68.60 USD. The fair value band runs from 51.26 to 76.89 USD with a midpoint of 64.07 USD, a margin of safety of -28.6% at the current price. The reverse DCF implies growth of 12.7% a year, against revenue growth of 8.9% and free cash flow per share growth of -3.5% a year over five years.

The strongest supports are ROIC of 36.7% against a WACC of 8.2%, a ROIC minus WACC value of 28.5%, and interest coverage of 13.6x. Free cash flow conversion over five years of 94.7% also supports the case. The weakest numbers are the current ratio of 0.77x, free cash flow conversion over the last twelve months of 77.6%, and net debt to EBITDA of 2.4x. A further fall in free cash flow, or a sustained rise in the current ratio, would weaken the case further.

Financial health

Financial strength is yellow: the Altman Z-score and interest coverage are good, but the current ratio is weak and net debt to EBITDA is neutral.

The current ratio is 0.77x and the quick ratio is 0.09. Net debt to EBITDA is 2.4x and interest coverage is 13.6x on a trailing basis. Debt to equity is not available, because the company reports negative shareholders' equity. The Altman Z-score is 3.54, in the safe zone. The Altman model was designed for manufacturers, and this company is a retailer, so the zone is only indicative. Insolvency risk is low, about 1.9% by the estimate of the Ohlson model over one to two years. Debt has fallen over five years, with a debt to revenue growth figure of -2.3%.

Earnings quality

Earnings quality is green, supported by strong free cash flow conversion and a shrinking share count, with the Piotroski score at 6 of 9 the main limit.

Free cash flow conversion is 77.6% over the last twelve months and 94.7% over five years. Accruals are -1.4% of assets, which is a conservative sign. Stock-based compensation is 0.18% of revenue, and free cash flow after it is 2.07 billion USD. The share count fell at a compound rate of 4.3% over five years, which reflects buybacks. The Piotroski score is 6 of 9. The Beneish M-score is not available. Over the last eight quarters the company beat estimates four times and missed three times, with an average surprise of 0.48%. Analysts raised the current-year estimates in 15 of the last 30 days with no cuts, and the next-year estimate moved up in 9 cases and down in 2.

Profitability

Profitability is green: ROIC clearly exceeds the cost of capital, and margins sit close to their ten-year medians.

The gross margin is 51.8% against a median of 52.5%. The operating margin is 19.8% against a median of 19.6%, and the net margin is 14.3% against a median of 14.3%. The margin stability figure is 4.6%. ROIC is 36.7% against a WACC of 8.2%, and the ROIC minus WACC value is 28.5%. ROIC was 42.2% at its five-year median, so returns have eased from that level. The DuPont split shows a net margin of 14.3% and an asset turnover of 1.08x. The return on equity is not available, because negative shareholders' equity makes it unreliable as a measure.

Growth

Growth is green: revenue has risen in each of the last ten years, and forward earnings estimates point to further growth.

Revenue compound growth is 7.3% over three years, 8.9% over five years and 8.4% over ten years. Earnings per share grew at 8.2% over three years, 12.5% over five years and 12.5% over ten years. Free cash flow per share fell at 12.6% a year over three years and 3.5% over five years, though it grew 7.3% a year over ten years. Revenue grew in 10 of 10 comparable years. The next-year earnings estimate implies growth of 10.6%.

Valuation

Valuation is red: every current multiple is above its ten-year median, and the price is above the fair value midpoint.

The P/E is 26.6x against a median of 20.8x, a premium of 27.6%. EV/EBITDA is 19.7x against 15.3x, a premium of 28.9%. Price to free cash flow is 34.3x against 21.7x, a premium of 57.7%, and price to sales is 3.8x against 3.1x, a premium of 21.3%. The DCF gives 59.55 USD per share at a discount rate of 8.87%, with growth of 8.9% for the first stage and 2.5% in perpetuity. The fair value from historical multiples is 68.60 USD. The fair value band runs from 51.26 to 76.89 USD with a midpoint of 64.07 USD. The reverse DCF implies 12.7% growth, against 8.9% revenue growth and -3.5% free cash flow per share growth over five years. The fair value is an order-of-magnitude estimate built on fixed assumptions, including a 5% equity risk premium and capped growth. It is not a price target. The dividend yield is 0%, and the free cash flow yield is 2.9%.

Risks

Several weak numbers could erode the case: a low current ratio, rising leverage, slower free cash flow and a valuation that is already high against history.

A current ratio of 0.77x and a quick ratio of 0.09 leave little liquidity buffer if short-term payments rise. Net debt to EBITDA of 2.4x means a fall in operating earnings would raise leverage quickly. Free cash flow per share has declined over three and five years, so a further drop would undermine the cash-based support for the price. Debt to equity, return on equity and the Beneish M-score are not available. This analysis has no debt maturity schedule and no revenue split by segment, so refinancing risk and business-line exposure cannot be assessed.