O'Reilly Automotive (ORLY)

By both methods, the value today (DCF $78 · Multiples $72) is below the market price ($87).

Today — expensive, no margin of safety: at $87 trades ~19.6% above its value discounted to today (~$72); the expected return does not even reach the risk-free rate (4.5%).

At 5 years — Preserva valor: the target price ($90) plus dividends yield just enough to preserve nominal capital, below the required 4% floor.

The bridge: the return at 5 years falls below the risk-free rate (4.5%) — which is why there is not even a discount to today's value. To require a 15% annual return, it would need to be bought at ~$45.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($87) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The price discounts growth (9.2%/year) above our base case (7.0%/year) → it is priced for a demanding scenario and leaves little cushion against a slowdown.

That growth implies ~$3.7 bn of owner earnings in year 5 (vs ~$3.3 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year 0 = TTM ended 30-Jun-2026 (rolling grid, §5 R1 bis); that quarter's 10-Q is already filed (07-Aug-2026) and ingested into XBRL, so the pipeline's TTM requires no rebase. Year 1 starts from the company's guidance (8-K of 29-Jul-2026, not from the filing's trajectory): FY2026 guidance (revenue US$18.9-19.2bn, diluted EPS US$3.20-3.30, operating margin 19.3-19.8%) implies year-over-year revenue growth of ~7.1% for the full fiscal year, and with that year 1 is anchored at +7.5% —within the band of the trajectory FY23 +9.7%/FY24 +5.7%/FY25 +6.4%/TTM +8.5%— decelerating geometrically and smoothly to ~5.0% by year 5 (store count growth ~3% + long-term comparables ~2-3%, without abrupt jumps). Maintenance capex is separated from growth capex with Greenwald (net fixed assets/sales × Δsales) because total capex runs well above depreciation (TTM 1.133 versus D&A 0.538, a ratio of ~2.1×) — the excess funds net store openings and distribution centers, not asset replacement. Buybacks are material (~3.3-3.5%/year of net share reduction, verified against the year-over-year comparison in the release itself: 858M in Q2'25 versus 829M in Q2'26) and are modeled with an explicit sharesPath by scenario (not accumulateCash), because the cash surplus goes entirely to buybacks and none sits idle; the projected pace is moderated slightly below the recent historical one because TTM buybacks (US$3.35bn) exceed owner-FCF (US$2.35bn) and are being funded partly with additional debt — it is not sustainable to extrapolate the peak without adjustment. The exit multiple (EV/EBIT over operating income, with cash and debt in the bridge) is derived from the specialty retail band [12-17×]: the score (moderate terminal growth ~5% + a wide and stable moat + an exceptional ROIC well above the 10% bar) places the base case at 14.5× — well below the current entry multiple, so the model credits a meaningful multiple compression that offsets much of the projected earnings per share growth.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $90 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $87, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $90 in 5 years and a required return of 4.5% annually, the maximum to pay today is $72. Against the current market price ($87), the margin of safety is -19.6% (trades above the maximum → a premium is paid) and the total return at that price would be 0.8% annually.

• Current multiple vs. archetype band. Today's EV/EBIT (22×) trades above the ceiling of the specialty-retail band (17×).
• Modeled multiple compression. The exit multiple (20x) implies meaningful compression from the entry level, which absorbs much of the projected earnings growth.
• Earnings-per-share growth. Projected earnings per share grow at a healthy low-double-digit pace, driven by revenue, margin, and buybacks.
• Estimated 5-year return. +1% at market price in the base case.
• Margin of safety today. No margin of safety: at this price capital is preserved, but it is not bought below its value..
• No dividend contribution. The entire estimated return comes from price appreciation; there is no dividend yield to complement it.
• 3-year vs. 5-year comparison. The 5-year value exceeds the 3-year value, reflecting that multiple compression completes earlier in the horizon than earnings growth.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ High incremental ROIC (compounding)
• ✓ CFROIC backs up the ROIC (84%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Exceptional ROIC. 57.9%, well above the 10% bar, leveraged by negative working capital.
• Positive incremental ROIC. Newly invested capital returns above the bar (~15.8%), confirming growth keeps creating value.
• Predictable cash generation. 33 consecutive years of record revenue and earnings support the predictability of operating cash flow.
• Negative working capital. The business is partly funded by supplier float, reducing the net invested capital required.
• Capex above depreciation. Total capex runs ~2.1x TTM depreciation, almost all directed to growth (openings and distribution centers), not replacement.
• Reinvestment runway with room ahead. The pace of net openings guided for 2026 exceeds that of 2025, evidence the network still has room to grow.
• Buybacks partly funded with debt. TTM buybacks exceed owner-FCF, a sign the current pace is not indefinitely sustainable without additional debt support.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

O'Reilly's growth breaks down into volume × price by customer channel (DIY vs. professional), not by geography or a formally reported segment —the company operates as a single operating segment. Added to this is an independent volume driver: net store openings, which add sales capacity beyond what existing-network comparable sales capture. The rise in average ticket in 2025 reflected partly the pass-through of import tariff costs to the consumer and partly the greater complexity and replacement cost of newer, better-built vehicles.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (30-jun-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Acceleration in comparable sales. From +2.9% in FY24 to +6.0% in Q2'26, with FY26 guidance raised to 4-6%.
• Pace of net openings. 225-235 net new stores guided for 2026, up from 207 in 2025.
• Still-moderate TAM penetration. ~10-11% of the U.S. addressable market estimated at $165,000-175,000 million, leaving room for organic growth.
• Professional channel gains weight in the mix. Grows ~13.5% year over year, nearly double the DIY channel, improving the quality of the revenue mix.
• DIY transactions declining. The number of DIY channel transactions fell in 2025 despite the higher average ticket, a sign of pressure on the discretionary consumer.
• Incipient international expansion. Mexico and Canada together add up to just 138 of the 6,695 total stores, a still-underexploited growth vector.
• Guidance raised mid-year. The company raised its comparable sales and earnings guidance after the second quarter, a sign of confidence in underlying demand.

• Dual DIY/professional strategy. Diversifies the business across two customer segments with different dynamics, reducing dependence on either one.
• Largely non-discretionary demand. Vehicle repair is largely necessary and cannot be deferred indefinitely, giving defensiveness against the cycle.
• Geographic concentration in the U.S.. Mexico and Canada represent barely ~2% of the network; the business depends almost entirely on the U.S. market.
• Logistics scale. 32 distribution centers and 399 hub stores provide same-day or next-day availability across a very broad parts catalog.
• Online competitive pressure. Amazon and Walmart compete in low-value-added DIY categories with lighter cost structures.
• Technological change in the vehicle fleet. The transition to electric vehicles and diagnostic access restrictions are a long-term structural risk, though still incipient.
• Per-store unit economics. Sales per weighted store and per square foot rising steadily, evidence that the mature network keeps improving its productivity.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• !Leverage (net debt / EBITDA)Net debt / EBITDA 1.6x
• ✓Interest coverage (EBIT / interest)15.5x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 84% of ROIC
• ✓Value creation (ROIC − 10% bar)+48pp
• !Malinvestment test (capex vs incremental ROIC)Strong investment mode 2.1x
• !Float / working capitalConsumes cash $0.4 bn (positive WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.2% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Interest coverage. TTM EBIT covers interest expense approximately 15 times, a wide margin of solvency despite negative equity.
• Negative equity from buybacks. Negative equity is a consequence of years of cumulative buybacks, not operating losses or business deterioration.
• Rising debt over the last year. Long-term debt rose by nearly $1,000 million over twelve months, partly to fund buybacks above free cash flow.
• Structural negative working capital. The business is partly funded by supplier float; this is not a sign of liquidity stress but a structural feature of the retail model.
• Access to capital markets. Active commercial paper program and revolving credit line, with a track record of smooth access to corporate financing.
• Operating cash generation. TTM operating cash flow (~$3,289 million) still comfortably covers total capex and a meaningful portion of buybacks.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• Consistent internal promotion. The CEO rose entirely from Parts Specialist over 29 years, consistent with the company's stated culture.
• Capital allocation via buybacks. 100% of shareholder return is buybacks, with no dividend; historical discipline of buying throughout the cycle since 2011.
• Opportunistic, limited acquisitions. M&A (wholesale distributors, small chains) is immaterial relative to organic capex, with no signs of diworsification.
• Guidance transparency. The company updates its guidance explicitly and in detail quarter to quarter, including the non-GAAP free cash flow reconciliation.
• Skin in the game unverified. The material reviewed did not identify the CEO's personal share ownership; it remains a declared gap.

• Structural premium for consistency: 33 consecutive years of record revenue and earnings partly justify the market paying a multiple above that of a typical retailer
• Largely non-discretionary demand (vehicle repair) that attracts defensive flows during macro uncertainty
• Exceptional ROIC and negative working capital, a combination the market tends to reward with a higher multiple than lower-quality retailers

No clear source of discount (missing buyers or motivated sellers) is identified in O'Reilly's current price: there is no corporate event, accounting one-off, or media noise explaining a gap between perception and reality. The price appears to genuinely reflect the quality of the business, leaving little margin of safety demandable under the method.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -7%/year (-30% total): the margin of safety protects the downside. The bull (+6%/year, +36% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Economic and credit deterioration. Demand is largely non-discretionary but sensitive to inflation, rates, employment, and credit availability.
• Technological change in the vehicle fleet. Electrification and diagnostic access restrictions could reduce independent aftermarket repair frequency.
• Online and mass-retailer competition. Amazon and Walmart compete with lighter cost structures in low-value-added DIY categories.
• Leverage and funding cost. A credit rating downgrade would raise the cost of the revolving line and commercial paper program, and could limit supplier financing.
• Supply chain and tariffs. Supplier consolidation, manufacturing off-shoring, and tariffs can raise sourcing costs or disrupt merchandise availability.
• Debt-funded buybacks. The current pace of buybacks exceeds free cash flow; a rate increase or a closed credit market would force it to moderate.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  A wide moat and ROIC 58% above the 10% bar, but the price sits above value (no margin) → great business, expensive.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 7% at a multiple/growth of 3.1 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 5% (EBIT/EV) + ROIC 58% → falls outside the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts 9% vs our 7%: priced for perfection, no favorable mispricing.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -7%/yr, bull-scenario ceiling +6%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A wide moat, stable; sources: cost advantage, efficient scale, intangibles, switching costs → passes the Five Rules.

• Aswath Damodaran Expectations implied by the price

  The price implies 9% vs our 7%: coherent, but at the optimistic end of the range.