AutoZone (AZO) shares have slipped about 8% over the past month, even as the stock is roughly flat over the past year, putting fresh attention on how investors are treating this long running auto parts retailer.
See our latest analysis for AutoZone.
At a share price of US$3,562.85, AutoZone’s recent 7.7% 1 month share price decline contrasts with its 7.8% year to date share price gain and its much stronger 3 year total shareholder return of 50.7%. This hints that momentum has cooled after a longer stretch of stronger compounding.
If AutoZone’s recent pullback has you reassessing the market, it could be a moment to broaden your search and check out 19 top founder-led companies as potential fresh ideas.
With AutoZone trading at US$3,562.85 and only a small intrinsic discount flagged, the key question is whether this recent weakness leaves the shares undervalued or whether the market is already pricing in everything ahead.
Most Popular Narrative: 15.3% Undervalued
AutoZone’s most followed narrative points to a fair value of $4,205.75 versus the current $3,562.85, putting a clear valuation gap in focus for investors.
International expansion, particularly in Mexico and Brazil, with a target of opening 100 new international stores in the fiscal year, is poised to increase revenue and profitability by tapping into underpenetrated markets.
Investments in new distribution centers featuring advanced technology and automation in California and Virginia are expected to create supply chain efficiencies, which should help to improve net margins.
Want to see what is behind that 15% gap to fair value? The narrative highlights a combination of revenue trends, margin profile and an assumed future earnings multiple. Curious which specific assumptions carry the most weight in that fair value math?
Result: Fair Value of $4,205.75 (UNDERVALUED)
Have a read of the narrative in full and understand what's behind the forecasts.
However, there are still pressure points to watch, including FX headwinds and tariffs on China sourced SKUs, which could weigh on margins if sales do not keep pace.
Find out about the key risks to this AutoZone narrative.
Another View: Market Multiple Sends A Different Signal
While the narrative and our model point to AutoZone trading around 15.3% below fair value, the current P/E of 23.9x tells a different story. It sits above both the US Specialty Retail average of 18.5x and our fair ratio of 20.7x, which implies investors are already paying a premium that could limit upside if expectations cool. How much comfort do you take in a small discount to fair value when the market multiple is this full?
See what the numbers say about this price — find out in our valuation breakdown.
Next Steps
With sentiment clearly mixed, this is the moment to look through the numbers yourself and decide how comfortable you are with the trade off between risk and reward. To help you weigh both sides quickly, take a closer look at the 2 key rewards and 3 important warning signs.
Looking for more investment ideas?
If this AutoZone move has you rethinking your watchlist, do not sit on the sidelines when there are other opportunities you can size up in minutes.
- Target dependable income and see which companies show up as potential income anchors in our 14 dividend fortresses.
- Hunt for value and let the data surface companies that stand out on price and quality in the 48 high quality undervalued stocks.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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