Is ORLY a good stock to buy? We came across a bullish thesis on O’Reilly Automotive, Inc. on Astute Optics’s Substack. In this article, we will summarize the bulls’ thesis on ORLY. O’Reilly Automotive, Inc.’s share was trading at $83.43 as of October 2nd 2026. ORLY’s trailing and forward P/E were 26.5 and 23 respectively
Is ORLY a good stock to buy? We came across a bullish thesis on O’Reilly Automotive, Inc. on Astute Optics’s Substack. In this article, we will summarize the bulls’ thesis on ORLY. O’Reilly Automotive, Inc.’s share was trading at $83.43 as of October 2nd 2026. ORLY’s trailing and forward P/E were 26.5 and 23 respectively according to Yahoo Finance. This isn’t the first time we see an auto parts supplier pitched as a great investment. Unfortunately, ORLY shares lost nearly 20% of their value over the last 12 months. Comparable stocks like AutoZone (AZO) lost a third of its value during the same period. Why are auto parts stocks declining so much and is it really a good time to buy them?
Genuine Parts Co. (GPC): Here’s Why Gabelli Sees Value in This Auto Parts Stock
Copyright: wihtgod / 123RF Stock PhotoIn May, we published an article about the best large cap stocks to buy under $100 and ORLY ranked 4th in that article. Btw, the #1 stock in that list returned more than 40% since then. So, hedge funds were right about their #1 pick but ORLY was a disappointment. This article explains why hedge funds were bullish on ORLY. Before getting into our analysis, let’s take a look at the business and why some investors like the stock so much.
O’Reilly Automotive, Inc. (NASDAQ:ORLY) is one of the largest sellers of car parts in North America, serving both everyday drivers who fix their own vehicles and professional repair shops. The company’s business benefits from a simple trend: cars are getting expensive to buy and finance, so people are holding onto their vehicles longer. Older cars need more repairs and more replacement parts, and O’Reilly Automotive, Inc.’s wide network of stores helps it get those parts to customers quickly.
Over the past year, revenue grew 8.5% to $18.6 billion and earnings grew 10.3%. That growth has earned the stock a premium price tag: it trades at about 27 times its past year’s earnings, compared to roughly 18.5 times for its peer group, meaning investors are paying more for O’Reilly Automotive, Inc. because of its stronger growth and profitability.
The bullish argument is straightforward: as long as people keep driving older cars, they’ll keep needing repairs, and O’Reilly Automotive, Inc.’s large distribution network puts it in a strong position to capture that demand. The numbers so far support this. The company’s revenue is growing more than twice as fast as its peer average, and its profit margins are well above the industry norm, showing it can turn sales into profit more efficiently than most competitors in the space. You can check out what makes up O’Reilly’s economic moat and whether it is widening or narrowing here.
Adding to the story, O’Reilly Automotive, Inc. has reportedly made a roughly $10 billion bid for the automotive parts business of Genuine Parts Company (NYSE:GPC), which includes the well-known NAPA Auto Parts brand. Neither company has confirmed a deal, but if it goes through, it could meaningfully expand O’Reilly Automotive, Inc.’s reach with professional repair shops. The company also generates solid cash: $2.8 billion from operations last fiscal year, leaving $1.6 billion in free cash after spending on stores and equipment. That cash supports both continued investment in the business and ongoing stock buybacks.
Wall Street remains fairly optimistic on paper, with analysts’ average price target implying about 26% upside from current levels. Yet the stock has actually fallen around 20% over the past year, even though earnings per share rose over that same period. In other words, the company has gotten more profitable, but investors have become less willing to pay up for that profit, so the stock’s valuation has cooled off even as the business improved. On a more encouraging note, far more analysts have been raising their earnings estimates recently than lowering them, suggesting confidence in the company’s near-term outlook.
That said, there are real risks. O’Reilly Automotive, Inc. sources many of its parts from Asia and Mexico, so new tariffs could raise costs that the company may not be able to fully pass on to customers. The balance sheet also carries meaningful debt, with far more owed than held in cash, and aggressive stock buybacks have pushed shareholder equity into negative territory. A roughly $10 billion NAPA deal would add even more debt and integration risk on top of that. With the stock already trading at a premium, there’s little room for missteps. The “Do-It-Yourself” (DIY) segment has cooled substantially. High inflation, elevated interest rates, and overall pressured household budgets have caused retail consumers to pull back on discretionary maintenance or delay non-essential repairs.
Another risk for the stock is higher oil prices. The recent surge in global oil prices has directly accelerated EV and hybrid adoption, creating a structural headwind that heavily impacts the valuation of ICE-centric companies like O’Reilly Automotive and AutoZone. Driven by geopolitical tensions in the Middle East, crude oil hovering over $100 per barrel has triggered record pump prices. This price shock pushed internal combustion engine (ICE) vehicle sales below 50% of the global market share for the first time in history during 2026. Traditional auto parts retailers are deeply exposed to the “gasoline car park”. The accelerating shift toward EVs directly pressures their long-term business models. In our opinion this is the main reason for the compression in price multiples.
Hedge fund positioning shows a mixed-to-cautious signal recently. As per our database, 69 hedge funds held O’Reilly Automotive, Inc. at the end of the second quarter, up from 67 the prior quarter. The small increase suggests institutional investors remain broadly comfortable with the company’s growth and profitability, even with the valuation and debt concerns in the background, though the pace of buying has been modest rather than aggressive. Among peers, AutoZone Inc. (NYSE:AZO) was held by 62 hedge funds, down from 63, while Advance Auto Parts, Inc. (NYSE:AAP) was held by 38 hedge funds, up from 34, and Genuine Parts Company (NYSE:GPC) was held by 47 hedge funds, down from 57. The divergence suggests institutional investors showed increased conviction toward O’Reilly Automotive, Inc. and Advance Auto Parts, Inc. (NYSE:AAP) while interest declined modestly in AutoZone Inc. (NYSE:AZO) and more sharply in Genuine Parts Company (NYSE:GPC).
Short interest data also paints a fairly calm picture for O’Reilly Automotive, Inc., with just 3.30% of shares available for trading currently sold short, similar to AutoZone Inc. (NYSE:AZO) at 2.99% and below Genuine Parts Company (NYSE:GPC) at 6.20%. Advance Auto Parts, Inc. (NYSE:AAP) stands out as the exception, with a much higher 26.35% of its float sold short. This suggests that while some investors are watching O’Reilly Automotive, Inc.’s valuation, tariff exposure, and debt load with caution, bearish bets against the stock remain far less common than they are against Advance Auto Parts, Inc. (NYSE:AAP).
Valuation Analysis
ORLY’s trailing P/E is 26.5. The US government pays an interest rate of 5.6% to borrow for 26 years. Heavily collateralized mortgage rates for 26 years is around 7%. We believe an appropriate discount rate for a stock like ORLY is around 8%. This means investors who buy ORLY at its current price are pretty much betting on that the company will grow its earnings 8% annually for the next 26 years. ORLY’s net income was $2.17 billion in 2022 and $2.54 billion in 2025. This puts its earnings growth rate at 5.4% over this recent 3 year period. We don’t think ORLY can accelerate its earnings growth rate and maintain that growth rate for 26 years. Its business is a melting ice cube and most of the companies will probably go out of business (will be acquired for low multiples) over the next 15-20 years.
Previously, we covered a bullish thesis on AutoZone, Inc. (AZO) by Francesco Ferrari in April 2025, which highlighted the company’s low volatility, strong margins, disciplined capital management, and long-term market-beating returns. AZO’s stock price has depreciated by approximately 22.51% since our coverage. We don’t think ORLY is a good long-term investment either.
O’Reilly Automotive, Inc. is not on our list of the 40 Most Popular Stocks Among Hedge Funds. While ORLY may see a temporary ‘dead cat bounce’ if interest rates suddenly decline, we believe some AI stocks offer stronger long-term potential, with a high probability of delivering superior returns on a much shorter timeline. If you are looking for an AI stock that is more promising than ORLY and that is trading at a huge discount, check out our report about this cheapest AI stock.
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