AutoZone (AZO) has underperformed the S&P 500 in the past year or so, only adding about 14% vs. 24% for the broader market. But the long-term growth story of this pick remains powerful — and as the largest auto parts retailer by revenue, it is an entrenched player that isn’t going anywhere.
The secular force lifting AZO is a general lag in new-car buying among Americans after the Great Recession. Folks are driving older vehicles longer, with the average age of a vehicle north of 11 years. And that’s the average!
It all adds up to a lot of brake jobs and oil changes to keep these older vehicles running longer — and more importantly, running at all.
Shares of AZO are up more than 60% since January 2011 as a result of this trend, doubling the market, but things have cooled off recently as new-car sales have improved. However, it is unlikely that the trend of driving older vehicles longer is going away, especially with a persistently high unemployment rate … and AutoZone’s reach with almost 4,700 locations means that it is at worst a stable player that won’t lose much ground.
AZO’s revenue has increased year-over-year every quarter for the past five fiscal years (that’s 20 quarters), as has its earnings per share, and it’s hard to argue with growth that consistent even if it isn’t always dramatic on a percentage basis. With a reasonable forward P/E ratio of 13 and the expectation that this growth will continue, AZO seems like a good bet even if shares are a bit on the costly side.
The company just reported earnings at the end of May, so don’t expect another report for a few months despite the current earnings drumbeat.