O’Reilly Automotive, Inc. (ORLY): A Bear Case Theory

We came across a bearish thesis on O’Reilly Automotive, Inc. on Valueinvestorsclub.com by moneytr33. In this article, we will summarize the bears’ thesis on ORLY. O’Reilly Automotive, Inc.’s share was trading at $90.13 as of June 30^th. ORLY’s trailing and forward P/E were 33.13 and 30.67 respectively according to Yahoo Finance.

O’Reilly Automotive (ORLY), widely regarded as a best-in-class auto parts retailer, is facing a compelling short case despite its operational excellence. The company boasts industry-leading same-store sales growth, unit expansion, and return metrics, but its current valuation—trading at 31x forward earnings—is at an all-time high and appears disconnected from its underlying fundamentals.

At this elevated multiple, ORLY offers a forward return of only 8–9%, driven by mid-single-digit revenue growth and a 3% free cash flow yield. Operational pressures are mounting as gross margins face headwinds and SG&A costs rise, leading to a decline in operating margins. Furthermore, share buybacks, once a key EPS lever, have become uneconomic given ORLY’s earnings yield is now below its cost of debt, eroding prior financial engineering advantages.

The pro segment, though sticky and lower-margin, is maturing, and growth has decelerated. Meanwhile, competitive threats are rising—from Walmart’s expanding auto parts push to a rejuvenated Advance Auto Parts reducing market share giveaways. Structural risks such as fewer parts in EVs and a future shift toward autonomous vehicles could dampen long-term sentiment.

Historically, valuation air pockets—as seen in 2017—have led to multiple compression, especially as cyclical tailwinds like post-COVID car demand normalize. Today’s 31x forward P/E, 1.5x the S&P’s multiple versus a historical average of 1.14x, could revert to or fall below market multiples, implying over 30% downside.

Though ORLY is not expected to implode fundamentally, it now resembles a richly priced, maturing business in an increasingly competitive and uncertain landscape—making it an attractive relative short.

Previously we covered a bullish thesis on AutoZone, Inc. by The Compounding Tortoise in June 2025, which highlighted its attractive valuation, strong same-store sales rebound, and long-term growth from new mega hubs. The company’s stock price has appreciated approximately by 1.4% since our coverage. This is because the thesis played out modestly. moneytr33 shares a contrarian view on peer O’Reilly Automotive emphasizing its stretched valuation and margin pressures.

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Disclosure: None. This article was originally published at Insider Monkey.