Saturday, March 7, 2015

Analysis of AutoZone


AutoZone, an American automotive repair and replacement company

Company: AutoZone

ISIN US0533321024 | WKN 881531

Business: An American automotive replacement company. They are active with repair, retail and distribution of automotive replacement parts and accessories.

Active: USA, Puerto Rico, Mexico, and Brazil with 5,391 stores.

P/E: 20.7

This company was analysed due to a request on Twitter from Rafy - Long Investor. Thank you for the suggestion!

contrarian values of P/E, P/B, ROE as well as dividend for AutoZone

The P/E is far too high for me with 20.7 and the P/B is no fun at all since it is -13.6! This gives a very clear no go from Graham. Earnings to sales look good with 11% but both ROE as well as the book to debt ratio gets messed up with the negative book value.
in the last five years they have had a yearly revenue growth of 5.2% which is excellent and this then gives us a motivated P/E of 15 to 18 which means that AutoZone is overvalued on the market today.
They pay no dividend which I do not like.
Comment... a negative book value I find completely unacceptable! Especially if a company is claiming to have made a profit of around 4.5 billion USD in the last five years. To me something just is not right. Even an insane growth company like Amazon that use as good as all cash flow for further growth have a book value that is positive.

Conclusion: Graham says no and so do I! P/E is too high, they pay no dividends and due to negative book value there is no reasonable ROE or book to debt figure available.

If this analysis is outdated then you can request a new one.

2 comments:

Anonymous said...

Hi

Can you explain the negative PB?

Thanks

Fredrik von Oberhausen said...

Well... I guess they favour growth / buying back shares to paying back their debts which is why they are in the situation of having more debts than what they have assets in the company.

Since they only grow 5% it is not due to that which leaves the buy back of shares program that has been massive since in the last five years they have decreased the outstanding shares with around -32% which is why they can show such nice EPS and EPS growth.

I would not be surprised if they decided to make a split of the shares.