Key Points

Sizable stock buybacks have propelled a meaningful reduction in this company’s outstanding share count. An impressive streak of same-store sales growth underscores the durable demand this business experiences. Shares are expensive on a historical basis, but that might not deter bullish investors. 10 stocks we like better than O'Reilly Automotive ›

Investors looking to find businesses that can outperform the S&P 500 index over the long term should look at those that have done just that historically. The thinking is that companies that have performed well in the past are likely in a good position to continue doing so.

In the past five years, one retail stock has climbed 238% (as of May 9). Even this year, it keeps crushing the market, up 15%, while the S&P 500 has fallen 4%. This business is doing something right to warrant such enthusiasm from the investment community.

Should you buy shares in May and hold them forever?Image source: Getty Images.

Steady financial growth

If investors aren't already, it's time to get familiar with O'Reilly Automotive (NASDAQ: ORLY). The retail chain sells aftermarket auto parts through a large network of stores scattered across the country (with a presence in Canada and Mexico as well). It targets both do-it-yourself customers and professional mechanics.

One reason to like this business is the steady financial performance over the years. Between 2014 and 2024, revenue increased at a compound annual rate of 8.8%. What's more, diluted earnings per share have risen at a yearly clip of 18.7%, demonstrating the shareholder value that has been created.

That bottom-line figure is supported by management's superb capital allocation strategy that involves aggressive stock buybacks. In the past decade, O'Reilly's outstanding share count has shrunk by 45%.

Durable demand continues

O'Reilly has reported same-store sales (SSS) growth for 32 consecutive years. This is one of the most important metrics for a retail enterprise. The fact that this company has such a stellar track record highlights the durable demand it registers. Increasing SSS, despite external conditions, might significantly ease investors' concerns about the economy.

Let's say the U.S. enters a recession later this year, something many are expecting. This will likely pressure new car purchases. However, people still need to get around, which will add wear and tear to vehicles. O'Reilly's business will benefit as it always has.

O'Reilly should experience solid growth prospects for the foreseeable future. The average age of vehicles on the road, at 12.5 years in 2023, has slowly climbed over time. The company loves to see this, as it means consumers are extending the useful lives of their cars and need the parts and supplies to keep them running properly.

Story Continues

An underrated quality that investors should appreciate is technological disruption. Companies that are successful over long periods can remain relevant. Because O'Reilly operates in a boring part of the economy, it's not prone to becoming obsolete like other industries might be. I think this reduces risk.

Not on the discount rack

Thanks to the stock's incredible performance, it doesn't trade at a cheap valuation. The current price-to-earnings (P/E) ratio of 33.3 is 38% higher than its trailing-10-year average. Shares are historically expensive, so it's best to wait for a pullback. That belief stems from my view to prioritize valuation when choosing investments to add to your portfolio.

The stock looks expensive, but a counterargument might be that the stock never really is cheap. For example, 10 years ago, shares sold at a P/E multiple of 28.4, a figure that investors would've argued was far from being a bargain. However, the stock price is up 515% since May 2015.

I can understand a different take from those investors most bullish on the business. They might consider dollar-cost averaging over several months if they really appreciate O'Reilly and want to be long-term owners of the company. It's hard to say a stock should be held forever, but this one comes pretty close.

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Neil Patel has 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.

1 Unstoppable Stock That Keeps Crushing the Market: Should You Buy It in May and Hold Forever? was originally published by The Motley Fool

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