AutoZone Inc (AZO, Financial) has seen a daily loss of 2.68%, and a 3-month loss of 0.88%, with an Earnings Per Share (EPS) (EPS) of 126.72. The question that arises is whether the company's stock is fairly valued. Our comprehensive analysis aims to answer this question, offering valuable insights into AutoZone's financial position, growth, and intrinsic value. We invite you to delve into our detailed evaluation.
Company Overview
AutoZone Inc (AZO, Financial) has established itself as the leading aftermarket automotive parts, tools, and accessories provider for do-it-yourself customers in the United States. The company generates an increasing share of sales from domestic commercial customers, despite its home market being dominated by its do-it-yourself operation, which accounts for around 70% of sales in the country. AutoZone also has a growing presence in Mexico and Brazil, with 6,943 stores across these regions as of the end of fiscal 2022.
With a stock price of $2454.62 per share and a market cap of $44.60 billion, AutoZone's price seems to align with the GF Value of $2578.35, suggesting that the stock may be fairly valued.
Understanding the GF Value
The GF Value is an exclusive measure of a stock's intrinsic value, computed by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the stock's fair trading value.
The stock of AutoZone (AZO, Financial) appears to be fairly valued according to the GF Value. This estimation is based on historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. Given AutoZone's current price of $2454.62 per share and a market cap of $44.60 billion, the stock seems fairly valued.
As AutoZone is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Evaluating Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, it's crucial to thoroughly review a company's financial strength before deciding whether to buy its stock. A great starting point for understanding the financial strength of a company is looking at the cash-to-debt ratio and interest coverage. AutoZone has a cash-to-debt ratio of 0.03, which is worse than 93.38% of 1103 companies in the Retail - Cyclical industry. GuruFocus ranks the overall financial strength of AutoZone at 4 out of 10, indicating that the financial strength of AutoZone is poor.
Assessing Profitability and Growth
Investing in profitable companies, especially those demonstrating consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low profit margins. AutoZone has been profitable for 10 out of the past 10 years. Over the past twelve months, the company had a revenue of $17.10 billion and an Earnings Per Share (EPS) of $126.72. Its operating margin is 19.6%, which ranks better than 93.41% of 1107 companies in the Retail - Cyclical industry. Overall, GuruFocus ranks the profitability of AutoZone at 10 out of 10, indicating strong profitability.
Growth is one of the most crucial factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Conversely, if a company's revenue and earnings are declining, the value of the company will decrease. AutoZone's 3-year average revenue growth rate is better than 81.39% of 1048 companies in the Retail - Cyclical industry. AutoZone's 3-year average EBITDA growth rate is 20.8%, which ranks better than 71.06% of 895 companies in the Retail - Cyclical industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, AutoZone's return on invested capital is 29.75, and its cost of capital is 6.35.
Conclusion
In conclusion, AutoZone (AZO, Financial) appears to be fairly valued. The company's financial condition is poor, but its profitability is strong. Its growth ranks better than 71.06% of 895 companies in the Retail - Cyclical industry. For more information about AutoZone stock, you can check out its 30-Year Financials here.
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