$AZO & $ORLY Show Why Quality Always Wins

Long_Equity
07-08

Over the last few years, $AutoZone(AZO)$ and $O'Reilly(ORLY)$ have always consistently appeared fairly high up on my screens.

It’s not a sector I would personally invest in, but their levels of compounding have been impressive.

Here’s my framework for determining whether a company is investable:

1. Financials - I look for consistently high returns on capital, high FCFps growth, margin expansion, and affordable debt.

2. Qualitative - Here I look for high market share, a mission critical product, a business not overly reliant on raw materials and expensive to maintain physical assets.

3. Valuation - I infer how much growth the market is pricing in, I then analyse whether that’s realistic or not.

Most investors think companies only compete for customers.

In reality, companies don’t just compete for sales. They compete for:

1. Capital

2. M&A targets

3. Talent

4. Raw materials

5. Technology

Investors need to consider all these factors as part of their due diligence.

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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