Key Points
Having a working car is a non-negotiable for most people, which supports the durable demand that O’Reilly Automotive benefits from.
The company's primary capital allocation strategy is to aggressively repurchase shares with its free cash flow.
It's trading at a reasonable forward price-to-earnings ratio of 23.
The broad S&P 500 index has performed well in 2026. But that doesn't mean all companies have benefited from the overall market's rise.
Take a look at O'Reilly Automotive (NASDAQ: ORLY), a leading aftermarket automotive parts retailer. Its shares have climbed 106% in the past five years (as of Sept. 24). However, they currently trade 20% below the peak established in September 2025.
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That dip is your opportunity to add a proven winner to your portfolio. History says now is a great time to buy this stock, as it's poised to double in the next five years.
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Be opportunistic when there's a sizable drawdown
Over the past decade, this retail stock has well outpaced the S&P 500 index, but it has also fallen by around 20% or more on five different occasions, including the latest drop.
The best investors aren't thrown off by the volatility. They view it as an opportunity. Had you been aggressive with O'Reilly Automotive stock during these challenging times and held on to it through the years, you would have reaped impressive rewards.
In 2022, for example, O'Reilly Automotive stock tanked 23% in the matter of a few weeks. Over the following seven or so months to close out the year, it soared by 47%. Similar dynamics played out in previous situations.
History doesn't repeat. But it often rhymes. And the patterns of the past suggest that O'Reilly Automotive stock won't stay down for long.
O'Reilly Automotive is a compounding machine
Owning high-quality businesses is a proven way to build wealth in the stock market. And O'Reilly Automotive fits the bill.
Demand is durable for the wares it stocks, which is one of its best characteristics. Selling car parts is an all-weather activity. Customers need these products in good economic times and bad, since having access to a functioning vehicle is essential for most people in their daily lives.
In 2025, O'Reilly Automotive reported same-store sales growth of 4.7%. This marked the 33rd straight year that same-store sales grew, a phenomenal track record. This metric rose during each of the first two quarters of 2026, too, so the streak is set to hold up this year.
The company had 6,695 stores as of June 30. But it's not done growing its footprint. It plans to open 225 to 235 net new locations this year. This is a strong growth pace for a company of this scale. Management believes in its expansion opportunity, as it operates in a highly fragmented segment of the retail industry, which makes it easier for a large player to continue boosting its market share.
Free cash flow (FCF) is another attribute that investors can't ignore. O'Reilly Automotive has no trouble generating meaningful profits. Its operating margin was 20.2% in the second quarter. It reinvests some of those profits back into the business to open new stores.
But the leadership team's chief capital allocation strategy is to aggressively buy back shares. In the first half of 2026, the company produced $1.5 billion in FCF and bought back $2.4 billion worth of its stock. This was not unusual for the company.
This strategy directly benefits existing investors, as their ownership stakes increase and they benefit from higher earnings per share (EPS). Over the past 10 years, O'Reilly Automotive's diluted outstanding share count shrank by 43%. During that time, diluted EPS soared at a compound annual rate of 17.1%. This is a winning formula.
Now is the time to buy
O'Reilly Automotive hasn't typically been known around the investment community as being a cheap stock. In the last three years, its price-to-earnings (P/E) ratio has averaged 30. Nonetheless, this has still been a lucrative portfolio addition.
Investors can buy shares at a compelling valuation right now, though. On a forward P/E basis, they trade at 23.4. Based on the company's attractive traits -- namely its recession-resilient nature, expansion potential, and persistent share buybacks -- O'Reilly Automotive is a high-quality opportunity to consider.
Its combination of valuation upside and EPS growth could result in it doubling over the next five years.
Neil Patel 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.