O'Reilly Automotive's Post-Split Valuation: A Strategic Wait or Buy Now?

O'Reilly Automotive (NASDAQ: ORLY) recently executed a transformative 15-for-1 stock split, effective June 10, 2025, following shareholder approval on May 15. This move slashes the per-share price from over $1,300 to approximately $89, dramatically lowering entry barriers for retail investors. While the split reflects the company's long-term success—its shares have surged 4,330% since its 2005 split—the question remains: Is the stock's premium valuation justified, or should investors wait for a correction?

The Split's Strategic Impact

The split aims to boost accessibility for employees through its stock purchase program, which offers a 15% payroll-deduction discount. For investors, the reduced share price could attract new buyers, potentially driving demand. However, the post-split valuation tells a different story.

Valuation in Context: A Premium, But for Good Reason?

O'Reilly's trailing P/E ratio of 30.68 (as of late 2024) is near its 10-year high of 31.57 and 33% above its historical average of 22.94. This premium reflects its dominance in the automotive aftermarket:
- Consistent growth: 20.9% annual EPS growth over the past decade.
- Cash flow strength: Generated $2.2 billion in free cash flow in 2024, enabling robust share repurchases ($559 million in Q1 2025 alone).
- Store expansion: Plans to add 200–210 locations in 2025, bolstering its 6,378-store footprint across 48 U.S. states and Mexico.

Yet, the premium carries risks. O'Reilly's P/E is 60% higher than its Retail-Cyclical peers' median of 18.5, and its 2.4 PEG ratio signals growth expectations may already be priced in.

Risks to Consider

1. Economic sensitivity: A recession could crimp discretionary spending on auto repairs.
2. Competitive pressures: Rivals like AutoZone (AZO) and Advance Auto Parts (AAP) are expanding aggressively.
3. Tariff risks: Trade policies could raise input costs, squeezing margins.

Why Wait? Strategic Entry Points

While O'Reilly's fundamentals remain strong, its valuation suggests investors should prioritize capital preservation over chasing growth. Here's why:
- Pullback potential: A 10–15% correction from current prices could align its P/E closer to its historical average.
- Dollar-cost averaging: Deploying $10,000 in three $3,333 increments over three months reduces timing risk.
- Dividend appeal: Though the stock currently lacks a dividend, its free cash flow could support one in the future.

Actionable Steps for $10,000

1. Wait for a dip: Hold off until the P/E falls to 25–27, roughly a 10% drop from June 2025 levels.
2. DCA strategy: Invest $3,333 monthly over three months if the price stabilizes near $90–$100.
3. Focus on long-term growth: Prioritize the stock for a 5–10-year horizon, given its store expansion and recurring revenue model.

Conclusion: Patience Pays

O'Reilly's post-split valuation rewards long-term holders but demands caution for newcomers. While its moat in auto parts distribution and cash flow are unmatched, the stock's premium leaves little margin for error. Investors are better served waiting for a pullback or averaging in over time—ensuring they pay a fair price for this automotive stalwart.

Final recommendation: Hold or accumulate on weakness. Avoid chasing the stock above $110 pre-split (equivalent to $7.33 post-split).