Valuation multiple comparisons
Valuation multiples are widely used to compare auto parts retail companies. However, only the companies with similar terms of business, size, or financials should be compared using these multiples. AutoZone’s (AZO) valuation multiples could be compared with companies such as Advance Auto Parts (AAP) and O’Reilly Automotive (ORLY).
AutoZone’s valuation multiples
Let’s begin by looking at AutoZone’s EV-to-EBITDA multiple (enterprise value to earnings before interest, tax, depreciation, and amortization). Here, enterprise value is the market value of the company’s equity and debt, minus its cash and cash equivalents.
As of February 20, AutoZone’s forward EV-to-EBITDA multiple was 9.6x. In comparison, the forward EV-to-EBITDA of its peers O’Reilly Automotive and Advance Auto Parts were 11.8x and 8.6x, respectively.
Similarly, AutoZone’s forward PE (price-to-earnings) multiple was at 13.4x, which was also lower than ORLY’s forward PE multiple of 16.1x and AAP’s 16.2x.
Automakers’ (FXD) forward valuation multiples—including Ford (F) and General Motors (GM)—were trading lower than auto parts retailers. As of February 20, GM and Ford had PE multiples of 6.8x and 6.4x, respectively.
What to watch for
Currently, AutoZone seems to be struggling to protect its profits and increase its revenue growth rate. In the last few quarters, the company hasn’t been able to impress investors due to a softening year-over-year sales growth rate. Also, AZO’s rising supply chain costs have acted as headwinds for its profits in recent quarters. A continued increase in these costs could affect its future growth estimates and result in lower valuation multiples.