O'Reilly Automotive or AutoZone: Which Stock to Buy?
2026-07-12 · By Lubin Danilo, founder of Lubin Investment
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O'Reilly Automotive and AutoZone both sell auto parts in the United States, and both are seeing their margins compress. But O'Reilly holds up noticeably better on almost every criterion in my screener. Neither is cheap today.
The same business, under the same pressure
O'Reilly Automotive and AutoZone sell auto parts and accessories, to do-it-yourself car owners as well as professional repair shops. Both companies are exposed to the same underlying trend: the average age of the US car fleet keeps rising, which in theory should support demand for replacement parts, yet both groups are seeing their margins decline anyway, a margin compression signal my screener flags for both.
O'Reilly: cheaper to generate a dollar of cash, more resilient
In my 10-criteria screener, O'Reilly scores 7 out of 10, versus only 5 out of 10 for AutoZone. The difference shows up on almost every line. O'Reilly's free cash flow margin reaches 10.3%, versus just 7.5% for AutoZone. O'Reilly's cash ROCE (return on capital employed) climbs to 27.8%, while AutoZone's caps out at 14.1%. O'Reilly's net debt stays at a reasonable level (3.16 times free cash flow), while AutoZone's reaches 5.86 times, a level I consider too high.
AutoZone: a more financially stretched model
AutoZone isn't a bad company, but it carries more debt for a lower return on capital, and its cash conversion (measuring how much of accounting profit truly turns into available cash) comes in at 0.60, versus 0.72 for O'Reilly. The lower this ratio, the further accounting profit strays from real generated cash, often due to investments or inventory swings that tie up capital. Both companies, however, post a very negative cash conversion cycle, -51 days for O'Reilly and -304 days for AutoZone, a sign of commercial strength: they get paid by suppliers last, after already selling their inventory, which frees up cash rather than tying it down.
The price: neither is cheap
On price, the two dossiers look similar: O'Reilly trades at 38.7 times its annual free cash flow, AutoZone at 34.9 times, both high multiples. My model puts a reasonable buy price of $33.40 for O'Reilly (against a current price of $86.28, a premium over 60%) and $616.74 for AutoZone (against a current price of $3,072.64, a premium near 80%). Neither presents itself as a bargain today against my disciplined target price.
| Criterion | O'Reilly (ORLY) | AutoZone (AZO) |
|---|---|---|
| Quality score | 7/10 | 5/10 |
| Free cash flow margin | 10.3% | 7.5% |
| Cash ROCE | 27.8% | 14.1% |
| Net debt / free cash flow | 3.16x | 5.86x |
| Current P/FCF | 38.7x | 34.9x |
| Estimated premium vs buy price | ~61% | ~80% |
So, which one to choose?
If you had to choose between the two, O'Reilly clearly comes out ahead on fundamental quality: nearly double the return on capital, lighter debt, better conversion of profit into cash. But neither stock is cheap today according to my model. This comparison illustrates a common case: two companies in the same sector, facing the same headwind (margin compression), but not weathering it the same way. Fundamental quality makes all the difference when a sector gets harder.
How I use this comparison in my method
I never conclude that an entire sector should be avoided or favored. Here, margin compression hits both companies in a similar way, but the one with the stronger financial structure (less debt, better return on capital) is better positioned to absorb this headwind without eroding its fundamental quality. That's exactly the kind of nuance my screener is meant to surface.
- O'Reilly (7/10) and AutoZone (5/10) both face margin compression
- O'Reilly has nearly double the return on capital (27.8% vs 14.1%) and less debt
- AutoZone carries net debt of 5.86 times its free cash flow, a level I consider too high
- Neither stock is cheap today: premiums of 61% (ORLY) and 80% (AZO) over my buy price
- Facing the same sector headwind, the stronger financial structure makes the difference
FAQ
Why are O'Reilly's and AutoZone's margins compressing?
Both companies face common margin pressure (labor, logistics, competition from online parts sellers), flagged by my margin compression criterion for both dossiers, despite an aging US car fleet that in theory should be favorable.
Why is AutoZone's debt higher than O'Reilly's?
AutoZone has historically pursued a more aggressive buyback policy partly funded by debt, which explains its higher net debt relative to free cash flow compared to O'Reilly.
Is a negative cash conversion cycle a good or bad sign?
It's a good sign of bargaining power: the company sells its inventory and collects cash from customers before even having to pay its suppliers. Both O'Reilly (-51 days) and especially AutoZone (-304 days) benefit greatly from this.
Should you buy O'Reilly or AutoZone today?
O'Reilly has the stronger fundamental quality of the two, but neither trades at a price I currently consider reasonable. This is not personalized investment advice, do your own research.
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About the author
Written by Lubin Danilo, founder of Lubin Investment. A self-taught individual investor, I find fundamental analysis fascinating, and it has delivered excellent results. For three years now, my performance has beaten the S&P 500. But analyzing every stock took too much time: sites with incomplete data, calculation methods and criteria never aligned with mine. And spotting the best stocks was just as time-consuming, even with my own well-defined checklist. So I put my software development background to work to build this software, base my investment strategy on its results, and share it with people who share the same passion as me. It judges a company's quality and its price separately, using criteria drawn from the financial literature (Warren Buffett, Michael Mauboussin, Aswath Damodaran).