There’s a lot to like about AutoZone.
During the 12-week period that ended May 4 — its fiscal 2024 third quarter — AutoZone (AZO -0.09%) reported 3.5% and 7.5% gains in revenue and diluted earnings per share, respectively. Shareholders weren’t pleased with those results and immediately sent the stock lower following the news.
As of May 24, shares of the auto parts retailer were 14% off their peak price from earlier this year. This presents a lucrative buying opportunity. Here’s why AutoZone is a no-brainer stock to buy with $100 right now. Note that the stock trades over $2,700 per share, so if you’ve only got $100 to invest, you’ll need to buy a fraction of a share.
It’s recession-proof
This company couldn’t be further away from the artificial intelligence boom. But in this instance, boring is beautiful. Through its network of 7,236 stores, 6,364 of which are in the U.S., AutoZone sells car parts and accessories, like brake pads, engine oil, and batteries, to do-it-yourselfers and auto mechanics. That doesn’t sound all that exciting and revolutionary, but it has helped shares soar 415% just in the past decade.
It’s worth calling out the durable demand this business experiences. There are few things more important in people’s daily lives than having a functioning vehicle — in both good and bad economies. This makes AutoZone somewhat recession-proof.
During the Great Recession, for example, the business reported revenue growth of 5% in fiscal 2009 and 8% in fiscal 2010. During tough times, people also might hold off on buying new cars, and instead will spend to maintain their existing vehicles.
Industry trends favor it
AutoZone has historically benefited from certain tailwinds. The average age of vehicles in the U.S. has been over 12 years since 2012, so these cars spend more time outside of the original manufacturer’s warranty, which is the sweet spot that AutoZone serves.
Moreover, Americans generally drive more miles in aggregate each year. This trend took a hit during the pandemic, when consumer mobility was restricted, but the takeaway is that, in total, wear and tear on vehicles is increasing. This backdrop supports demand for AutoZone.
These long-term industry trends have helped drive consistent same-store sales and earnings growth. And it’s hard to see this coming to an end anytime soon.
The aftermarket auto parts industry remains very fragmented, so there isn’t a single player that dominates. Consequently, there are many smaller retailers that compete with AutoZone. But given its brand recognition, huge store base, and unrivaled inventory, I’m confident this business will be able to better serve customers and, in turn, steal market share in the years ahead.
The stock has a compelling valuation
We’ve seen that this is a high-quality enterprise. The next variable investors need to consider before buying shares is the current valuation. It doesn’t matter how great a business is. If the price is too steep, it can make for a terrible investment.
As of this writing, AutoZone shares trade at a price-to-earnings ratio of 19.6. This is slightly more expensive than the stock’s trailing-10-year average. But it represents a notable discount to the broader S&P 500.
Management has long adopted a capital allocation policy of plowing free cash flow aggressively into buying back stock. In the past five years, the outstanding share count has been reduced by 30%, a move that increases the ownership stake of existing investors. Given the attractive valuation, this still looks like smart use of capital.
There might be no better time than now to spend $100 to buy a steady compounding machine like AutoZone. Just plan to own shares for the next five years, at least.
Neil Patel and his clients have 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.