About AutoZone

AutoZone is a Memphis, Tennessee-headquartered car’s best friend.

With well over 6,000 store locations, the good folks over at AutoZone specialize in keeping your car in good condition and keeping their profit margins as wide as possible without (at least, we’d assume) compromising quality.

While there are plenty of local auto parts specialists and companies across the United States and the globe, when it comes to “Big Auto,” AutoZone and one of its major, large-scale competitors, O’Reilly Auto Parts take the cake.

Holding around 14% market share, AutoZone essentially sells a slew of aftermarket auto parts and accessories, as well as offers specials such as complimentary testing services that our team has used in the past.

They’re like The Home Depot for automobiles. 

While that can be viewed as quite a lofty, possibly unwarranted comparison, Home Depot is the largest home improvement retailer in the United States and AutoZone itself is the largest auto parts retailer in the country.

Shifting back to AutoZone, although offering free services isn’t exactly music to an investor’s ears, we do like companies that make it a point to go out of their way and help their customers, leaving a lasting impression for years to come, also giving a reason for a customer to pick up some spare parts while they’re at the store.

Now that we’ve laid some of the necessary groundwork in terms of background information, let’s nip away at some of the company’s financials and get a better understanding of the numbers driving (pun definitely intended) AutoZone.

AutoZone’s stock financials

Right off the bat, AutoZone’s stock is pricey, but not necessarily expensive.

Currently trading at a share price of almost $2,214 dollars (yes, per share), many might assume that the company’s stock isn’t even worth looking at and is simply just a bubble waiting to pop. However, upon further review of the company’s price-to-earnings (P/E) ratio, which is a standard metric primarily used to discern whether or not a stock is over or undervalued, AutoZone’s stock is trading pretty much at where it should be.

Specifically, the company’s current P/E ratio is 19.6, where a P/E of 20 is generally accepted to indicate that a stock is trading at fair value, or what it’s worth while under 20 is said to indicate that a stock is undervalued.

According to the company’s P/E ratio, one could even make the argument that the stock is slightly undervalued. 

From our perspective and for the sake of simplicity, we think the stock is trading at what it’s worth, nothing more, nothing less.

As for some more metrics, the company also has a market capitalization of $43.15 billion and does not currently distribute a dividend to its shareholders.

Let’s get deeper into the zone with AutoZone.

As it relates to the company’s balance sheet, the C-Suite manages approximately $14.5 billion in total assets paired with roughly $16.3 in total liabilities.

It’s somewhat rare when we see a company as large and established as AutoZone having more liabilities than assets on its books. While it’s by no means by a large amount, we definitely think it’d be worth keeping an eye on the company’s balance sheet over the next few years in hopes that the company’s management team will tame some of its outstanding liabilities and debts, getting back to being asset-heavy instead of liability-heavy.

At the same token, it must be considered and understood that the auto parts industry demands, for those that want to survive, a lot of readily available inventory ready to be sold, implying that AutoZone and its counterparts (and any other major retailers for that matter) likely have a lot of equipment and parts in the process of being sold or manufactured (and the prices of many of these goods and the commodities to produce these goods have increased in recent history), ultimately increasing their costs, leading to an increased debt level for the company. This can be substantiated by the fact that the company’s accounts payable (what it owes others) along with its total current liabilities have notably increased between 2019 and 2021.

Long story short, as long as AutoZone trims down its total liabilities moving forward, we’re not terribly concerned with their somewhat heightened level of total liabilities given the relative size, scale and reach this company maintains.

From a revenue standpoint, the company’s has shallowly but steadily risen over the past five years (which we love) from around $10.9 billion in 2017 rising each year thereafter to nearly $14.7 billion in 2021.

This can likely be attributed to new store locations, heightened demand for car maintenance and assistance given the growth of the gig economy (DoorDash, Uber, Lyft etc…) or possibly but not exclusively its growth in market share as smaller, domestic competitors might’ve not been able to bear the financial stress that stemmed from COVID-19.

Although bad for small businesses, it was objectively a boon for AutoZone and its shareholders.

While we were initially concerned about the company reporting negative net income on their cash flow statement during 2020, we were shocked that the company has kept its cash flow and cash from operations exquisitely consistent and generally growing.

This gives us some needed confidence that AutoZone is financially equipped to properly tend to its total liabilities in the long run.

AutoZone’s stock fundamentals

What also gives us confidence in AutoZone you might ask?

Come on, we said “might.”

It’s their impeccable trailing twelve month (TTM) net profit margin of 15.21% compared to the industry’s average of -17.75%, according to TD Ameritrade’s platform.

The company’s ability to turn a profit and outperform the formidable competition on this basis is as the cool kids say, for real. It’s just a major perk of running nearly 15% of the entire auto parts and auto retailer market.

 While we typically don’t give much credence to this metric, it would be foolish if we didn’t mention the fact that AutoZone’s TTM earnings per share (EPS) and revenue growth is still, you might’ve guessed, growing.

This is hard for most mature, industry giants to do, however AutoZone is nevertheless doing it.

Additionally, the company’s TTM returns on assets and investment are both higher than the industry average as well.

As we commonly assert ourselves to not be industry experts regarding the companies we analyze, we like to think we have a fair grasp on numbers and financial metrics and the economy as a whole, and according to these standards the bull case for AutoZone’s stock is compelling to say the least.

Should you buy AutoZone stock?

Given the aforementioned discussion of the current and future economic landscape(s), the company’s more than solid figures and that the stock is trading at around fair value (slightly below), as long as the company responsibly tends to its total liabilities over the next five years (barring any other extraordinary economic shocks or disruptions), we give AutoZone stock a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.