$AZO & $ORLY Show Why Quality Always Wins
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.
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