O’Reilly Automotive Inc (ORLY), Advance Auto Parts, Inc. (AAP), Genuine Parts Company (GPC): Which Automotive Parts Retailers Should Investors Buy?

Genuine Parts Company (NYSE:GPC) has been generatingconsistent cash flow in the past ten years. In 2012, it generated $906 million in operating cash flow and $804 million in free cash flow. Genuine Parts seems to employ the lowest financial leverage among the three, at only 2.27, while O’Reilly’s financial leverage ratio is 2.73. With nearly 5% net margin, the return on equity in 2012 was 22.42%.

Interestingly, although O’Reilly enjoyed the highest operating margin and net margin of 9.47%, its return on equity was the lowest at 16.38%. Advance Auto Parts, Inc. (NYSE:AAP) is valued the cheapest of the trio, at only 7.5 times EV/EBITDA, while O’Reilly and Genuine Parts Company (NYSE:GPC) have similar EV multiples at around 11.35. Income investors might like Genuine Parts the most due to its highest dividend yield of 2.60%. Advance Auto Parts offers a much lower dividend yield of only 0.30%, while O’Reilly has not paid any dividend yet.

My Foolish take

All three automotive parts retailers seem to be good stocks to own for the long-term because of their cash generating capability, reasonable leverage level, and double-digit returns on equity. I like Advance Auto Parts the most with its highest return on equity and the lowest EV multiple.

The article Which Automotive Parts Retailers Should Investors Buy? originally appeared on Fool.com and is written by Anh HOANG.

Anh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

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