Monday, March 12, 2012

Gain from Pain

Since its near collapse in 2009, the American auto industry has made a surprising comeback of late. But the Great Recession didn’t hurt all auto-related businesses. From a low of about $3.5 billion in October 2008 (a few weeks after Lehman's implosion), O’Reilly Auto’s market capitalization has more than tripled. The same scenario has played out at O’Reilly’s main competitor, Autozone. Its stock price has risen from $92 during the depths of the recession to over $380. The reason for the skyrocketing stock prices is simple: people have been keeping their cars longer than they used to. With credit hard to find over the last few years and unemployment at devastatingly high levels, Americans have done their utmost to push their cars to the breaking point. Statistics reflect this. The average age of a car on the road in 2011 was eleven years. This is an all-time high. With this in mind, it is no surprise that the valuation of auto supply companies have gone up. But with the news that new car sales are rebounding nicely, it will be interesting to see whether the management at O’Reilly and Autozone can keep those stratospheric stock prices from falling off a cliff.
- Read more about it here: The New Yorker