O'Reilly Reports Strong Q4 Growth, But Valuation and Risk Concerns Unchanged

What happened

O'Reilly Automotive announced solid Q4 2025 results, with comparable store sales up 5.6% and full-year sales increasing 6.4% to $17.8 billion, reflecting continued execution in the resilient auto aftermarket. This performance aligns with the DeepValue report's view of the company as a high-quality compounder with a defensible network moat. However, the report highlights that the stock trades at a rich premium, with a P/E around 31x and a DCF intrinsic value estimate of ~$33 versus the current price near $90, indicating limited margin of safety. Key risks such as leverage (net debt/EBITDA of 2.1x), negative equity, and long-term threats from e-commerce and EV adoption remain unaddressed in this earnings update. Thus, while the growth is positive, it does not materially alter the overvaluation or risk profile that underpins the cautious investment stance.

Implication

The 5.6% comparable store sales growth in Q4 demonstrates O'Reilly's ability to capture share in a stable market, supporting its moat and compounding narrative. However, with total sales up 6.4% to $17.8 billion, this growth rate is unlikely to bridge the gap between the current price and the conservative DCF estimate, keeping valuation stretched. Leverage and balance sheet concerns, including net debt/EBITDA of 2.1x and negative equity, persist unchanged, as the earnings do not signal deleveraging or improved financial resilience. Long-term headwinds from digital disintermediation and EV adoption could pressure future margins, making sustained high growth uncertain in a competitive landscape. Therefore, the news reinforces the need for patience, with the stock still offering thin downside protection and a balanced risk/reward at current levels.

Thesis delta

The strong Q4 sales growth does not shift the core investment thesis, as O'Reilly remains a high-quality business with overvaluation and significant risks. While operational performance is robust, it fails to address the DCF gap or mitigate leverage and technological threats. Thus, the recommendation stays at WAIT, with no compelling reason to move towards a buy or sell stance based on this update.