Why O’Reilly Stock is Currently Overvalued

O’Reilly stock has fallen 13% since the start of the year

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O'Reilly Automotive Inc (NASDAQ:ORLY) is one of the largest specialty retailers of automotive aftermarket parts, tools, supplies, equipment, and accessories in the United States. ORLY operates 5,811 stores in 47 U.S. states and 27 ORMA stores in Mexico, serving both professional service providers and do-it-yourself customers.

O’Reilly stock has lost over 13% in 2022, though it's still clinging to a 10.3% year-over-year lead. The security recently staged a bounce off its $580 level, and is now contending with former support-turned-pressure at the 30-day moving average. 

orly june 23

Short-term options bears have been targeting the security in droves, with these traders rarely more put-biased during the past year. This is per ORLY's Schaeffer's put/call volume ratio (SOIR) of 2.33, which sits higher than 99% of readings from the past year. 

Echoing this, the equity sports a 50-day put/call volume ratio of 2.98 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) that sits higher than all other readings from the past 12 months. In other words, options traders are picking up puts at a much quicker-than-usual clip. 

These traders may be on to something, as the automotive stock continues to have downside potential, due to its high valuation. At a forward price-earnings ratio of 18.08 and a price-sales ratio of 3.03, ORLY should be expected to produce double digits with their top and bottom-line growth percentages.

Instead, O’Reilly is expected to end fiscal 2022 with 7.3% revenue growth and 5.9% earnings growth. In addition, the automotive business offers no security with its balance sheet, holding just $191.55 million in cash and $5.86 billion in total debt. As a result, O’Reilly stock’s valuation metrics and fundamentals indicate that it is overvalued.

The most bullish factor O’Reilly stock has at the moment can be found in its fiscal 2023 bottom-line growth estimates. The automotive company is expected to see an 11.5% increase in earnings, making the stock’s valuation appear less rich. Still, expectations for fiscal 2023 suggest that ORLY will also see a decline in its top line growth rate, with estimates placing its revenue growth at 5.5%.


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