Investors are always on the lookout for opportunities to invest in companies whose **stocks are on the rise**. When a company’s share price skyrockets over time, however, it can create a challenge for those with limited capital to buy full shares. Enter the magic of a stock split, a strategic move that can open up new doors for investors eager to seize the moment.
Imagine finding a **retail stock** that has **surged 509% in the last decade**, outperforming the S&P 500 index and hitting a remarkable **14% increase in 2025** (as of June 10). With a **recent stock split** in place, could investing **$10,000** in this company right now be your next smartest move? Let’s delve deeper.
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Understanding the Dynamics of a Stock Split
Before diving into investment decisions, it’s crucial to grasp the concept of a **stock split**. Companies, through their boards of directors, aim to make their shares accessible to a broader investor base, thereby driving demand. A stock split simply means that the company **artificially lowers** its stock price while simultaneously increasing the number of outstanding shares.
For instance, on March 13, **O’Reilly Automotive** (ORLY) executed a **15-for-1 stock split**. After the share price adjustment, O’Reilly’s price dropped from about **$1,350** to **$90** overnight, making it more accessible to potential investors, while the number of outstanding shares increased proportionately.
Despite the buzz, it’s important to remember that a stock split does not affect the company’s **fundamental or operational** aspects. O’Reilly’s **corporate strategy**, **revenue**, **profits**, and **market cap** remain unchanged, a factor often overshadowed in the excitement.
Evaluating O’Reilly’s Investment Potential
Over the past decade, **O’Reilly’s stock** has outperformed almost every major index. When we take a step back, the performance is even more astonishing: since its **initial public offering (IPO)** in April 1993, the stock has skyrocketed an eye-popping **56,350%**. This impressive growth speaks volumes about O’Reilly as a robust investment.
As of March 31, O’Reilly operates **6,416 stores** (with **6,298** in the U.S.) that provide **aftermarket auto parts** – think brakes, batteries, and motor oil. The beauty of this business model lies in the consistent demand: regardless of economic fluctuations, consumers require these products. A working automobile is often an absolute necessity for people, making this demand non-negotiable.
In prosperous economic times, consumers drive more, resulting in wear and tear on vehicles. Conversely, during economic downturns, individuals might delay purchasing new cars, instead opting to invest in their current vehicles’ maintenance. This duality ensures a steady demand for O’Reilly’s offerings.
Financially, O’Reilly enjoys significant profitability, reporting **$2 billion in free cash flow** in 2024, and approximately **$455 million** in Q1 alone. The management team has a track record of investing this cash into **share buybacks**. Remarkably, in the past five years, O’Reilly’s diluted outstanding share count has shrunk by **24%**, effectively enhancing **earnings per share**.
However, be warned: while O’Reilly is a stellar company, its current valuation isn’t bargain-basement. The stock trades at a **price-to-earnings ratio of 33.3**, which is **38% higher** than the trailing 10-year average. This leads me to conclude that potential investors may be better off **waiting for a pullback** before adding this stock to their portfolios. If you’re bullish on O’Reilly, consider a **dollar-cost averaging** strategy to invest **$10,000** over the next year—this approach allows you to take advantage of any fluctuations in price.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. For more insights on investment strategies, check out their disclosure policy.
