We recently published a list of the 12 Stocks to Buy That May Be Splitting Soon. In this article, we are going to take a look at where O’Reilly Automotive, Inc. (NASDAQ:ORLY) stands against other stocks that may be splitting soon.
Stock splits change the number of outstanding shares of a company, but not the company’s overall value. A forward split makes each share cheaper and easier to buy. Splits can range from 2-for-1 to 100-for-1 or more. In a 2-for-1 split, one share becomes two by cutting the price in half. For instance, a $100 share becomes two $50 shares. This makes shares more affordable and attracts more investors. Even though the price per share drops, the total value held by shareholders stays the same. So, splits don’t change who controls the company. The main reason for a split is to make the stock more appealing, or accessible for retail investors.
Uncertainty is Driving Selloff
Dan Suzuki, Deputy CIO at Bernstein Advisors, joined CNBC’s ‘Squawk on the Street’ on March 14 to share his perspective on the recent persistent three-week downtrend in the indexes during an interview. He explained that the sell-off is largely driven by uncertainty and its negative impact on sentiment. According to Suzuki, analyzing market movements reveals that the stocks that rallied most after the election until mid-February have seen significant declines since then and create a mirror image effect. Additionally, the most expensive and high-beta stocks have been hit hardest as the market prices are in an uncertainty risk premium. These dynamics are central to what is driving markets currently. Despite this, Suzuki noted that hard economic data remains strong and suggests that relief from headline uncertainties could reduce the risk premium.
Suzuki noted concerns over soft retail sales and spending figures, which might be due to weather or seasonal factors. However, he highlighted resilience in weekly retail sales and strong leading indicators. Prolonged uncertainty could still impact growth. Suzuki linked consumer trends to disappointing corporate guidance and persistently high inflation, which affected sentiment. He also pointed out the wealth effect caused by a stock market decline of 10% or more, particularly for investors in crowded names. Markets are adjusting to persistent uncertainty, which will continue even with relief anticipated within the next month or two, which will prevent a return to the high multiples seen in 2020-2023.
In an uncertain market with heightened risk premiums, companies considering stock splits may need to weigh the potential benefits against the backdrop of overall market sentiment. The ongoing economic uncertainty and changes in consumer behavior might impact how companies approach decisions about stock splits, especially if they are concerned about maintaining investor confidence in a volatile market.
Methodology
We sifted through ETFs, online rankings, and internet lists to compile a list of the top stocks that were trading over $400 as of March 17. We then selected the 20 stocks with high surges in their share prices in the past 5 years and a history of stock splits. From that, we picked the top 12 stocks that were the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of the number of hedge funds that have stakes in them, as of Q4 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A mechanic working in a busy automotive service station, attended by customers.
O’Reilly Automotive Inc. (NASDAQ:ORLY)
Share Price as of March 17: $1,327.41
Surge in Share Price in 5 Years: 403.25%
Stock Split Confirmed: No
Number of Hedge Fund Holders: 63
O’Reilly Automotive Inc. (NASDAQ:ORLY) retails and supplies automotive aftermarket parts, tools, and accessories across the US, Puerto Rico, Mexico, and Canada. It caters to both DIY and professional customers and offers a range of products and services. These include hard parts, maintenance items, and various support programs, under numerous proprietary brands.
The company’s Professional business consistently achieved mid-single-digit comparable store sales growth throughout 2024. This segment caters to professional mechanics and garages, and its strong performance is crucial to the company’s overall success. Professional ticket counts also contributed to sales growth. The company is gaining market share in the professional segment through exceptional customer service and industry-leading inventory availability. It’s strategically investing in its hub store network to enhance parts availability and expanding its distribution network to support this growth.
O’Reilly Automotive Inc. (NASDAQ:ORLY) maintains industry-leading inventory levels. The company now expects increased ticket counts due to higher industry growth rates and continued market share gains. Its focus on service and inventory positions it well for continued success in this segment.
Qualivian Investment Partners maintains O’Reilly Automotive Inc. (NASDAQ:ORLY) as a long-term core holding due to its market leadership and strong capital allocation. It stated the following regarding the company in its Q3 2024 investor letter:
“O’Reilly Automotive, Inc. (NASDAQ:ORLY): The company reported Q2 2024 revenue growth of 5% on a SSS comp of 2.3%, while EPS grew 7%, both of which missed expectations. Management as well as competitor commentary suggested slowing demand industry wide. Operating cost leverage from a growing topline was offset by wage inflationary pressures, resulting in operating margins coming down by 40 bps year-on-year. The company revised full-year guidance down for revenue, same- store-sales comp growth, and EPS to account for the miss in the quarter.
ORLY is the leader in the automotive retail parts marketplace and has outexecuted the competition, especially the smaller mom and pop auto parts stores that cater to the retail and auto mechanic shops in the US. Furthermore, its historical deployment of its excess cash to repurchase its shares continues to be a key linchpin of its ability to generate shareholder returns more than the market. While we are maintaining a watchful eye on slowing market trends, we continue to see ORLY as a long-term core holding in the fund.”
Overall, ORLY ranks 6th on our list of the stocks that may be splitting soon. While we acknowledge the growth potential of ORLY as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than ORLY but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
