3 Reasons ORLY Has Explosive Upside Potential

October 03, 2025 at 00:01 AM EDT

ORLY Cover Image

Even though O'Reilly (currently trading at $104.98 per share) has gained 9.2% over the last six months, it has lagged the S&P 500’s 24.7% return during that period. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Given the relatively weaker price action, is now a good time to buy ORLY, or is it a pass? Find out in our full research report, it’s free.

Why Is ORLY a Good Business?

Serving both the DIY customer and professional mechanic, O’Reilly Automotive (NASDAQ: ORLY) is an auto parts and accessories retailer that sells everything from fuel pumps to car air fresheners to mufflers.

1. Surging Same-Store Sales Show Increasing Demand

Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.

O'Reilly’s demand has been spectacular for a retailer over the last two years. On average, the company has increased its same-store sales by an impressive 3.9% per year.

2. Elite Gross Margin Powers Best-In-Class Business Model

We prefer higher gross margins because they not only make it easier to generate more operating profits but also indicate product differentiation, negotiating leverage, and pricing power.

O'Reilly has best-in-class unit economics for a retailer, enabling it to invest in areas such as marketing and talent. As you can see below, it averaged an elite 51.3% gross margin over the last two years. That means O'Reilly only paid its suppliers $48.72 for every $100 in revenue. O'Reilly Trailing 12-Month Gross Margin

3. Excellent Free Cash Flow Margin Boosts Reinvestment Potential

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

O'Reilly has shown terrific cash profitability, driven by its lucrative business model that enables it to reinvest, return capital to investors, and stay ahead of the competition. The company’s free cash flow margin was among the best in the consumer retail sector, averaging 11.1% over the last two years.

O'Reilly Trailing 12-Month Free Cash Flow Margin

Final Judgment

These are just a few reasons why we think O'Reilly is a high-quality business. With its shares lagging the market recently, the stock trades at 33.7× forward P/E (or $104.98 per share). Is now the time to initiate a position? See for yourself in our full research report, it’s free.

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