In the past 20 years, the S&P 500 has produced a total return of 619% (as of July 2). This means that a $10,000 investment would've turned into $72,000 today. That's a great return.
But there's one stock that has drastically outperformed the broader index. The business I'm talking about has nothing to do with the internet or artificial intelligence , which is a shocker.
This magnificent stock has generated a fantastic 4,440% return in the past two decades. That $10,000 initial investment would be worth a jaw-dropping $454,000 today. Continue reading to learn more about this successful company.
Boring is beautiful
Investors need to get familiar with O'Reilly Automotive (NASDAQ: ORLY) . This is a boring aftermarket auto-parts retailer, with 6,131 stores scattered across the U.S. (with a small presence in Canada and Mexico) that has put up exciting returns for its investors over the years. There are a few reasons why this is a wonderful business.
For starters, O'Reilly faces minimal threats to disruption. It targets consumers whose cars are past their original manufacturer's warranty, which is a massive pool of vehicles nationwide. The rise of electric vehicles (EVs) might be a risk to be mindful of, but there's a long way from now to a time when these cars will be dominating our roads. For the time being, O'Reilly should continue benefiting from the growing age of vehicles and the increasing number of miles driven each year.
The company's financials are superb. Growth has been steady. Revenue of $15.8 billion in 2023 was 66% higher than five years earlier. Perhaps more impressive, O'Reilly reported strong above-normal, double-digit, same-store sales growth throughout the depths of the pandemic.
Generating profits seems effortless. In the last decade, O'Reilly's operating margin has averaged 19.8%. Given the non-discretionary nature of some of the products the company sells, there could be some pricing power that management takes advantage of from time to time.
There are few businesses that help their shareholders sleep well at night more so than O'Reilly. That's because it experiences durable demand regardless of the macroclimate .
In recessionary periods, consumers might hold off buying a new car. Instead, they'll invest in the parts and supplies to keep their existing vehicles running and in good condition.
And during a robust economic backdrop, with low unemployment and heightened consumer confidence, people will likely drive more. This increases the wear and tear on their cars. In both of these scenarios, demand for O'Reilly is healthy. This is what has been the case historically.
Look at the valuation
As of this writing, shares of O'Reilly trade at a price-to-earnings (P/E) ratio of 26.3. This doesn't scream bargain. It's more expensive than the S&P 500's P/E multiple of 24.1. And it represents an 11% premium to the stock's trailing-10-year average. I don't think O'Reilly is a secret. The market is fully aware of just how outstanding a business this is.
However, it might still be smart to buy the stock. According to Wall Street consensus-analyst estimates, revenue and earnings per share (EPS) are expected to rise at compound annual rates of 6.3% and 10.9%, respectively, between 2023 and 2026. While it's always a good idea to take forecasts with a grain of salt due to the predictable nature of this business, these estimates could be reasonable. Seeing the bottom line grow double digits would be great.
Past results don't guarantee future returns, but O'Reilly is a proven compounding machine that has provided superior returns for patient shareholders. You could argue that the shares are fully valued right now, but the price could be worth it to own a proven winner with minimal risk.
Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .
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