2 The Unstoppable Multibagger Up 1,790% and 8,790% Since 2000, Buy and Hold Forever

o’reilly cars (Orly 0.57%) and snap on (SNA -0.81%) Despite its somewhat mediocre operations, it has significantly outperformed the broader market over the past few decades. The two companies have achieved total returns of 8,790% and 1,790%, respectively, since 2000. This is significantly higher than the total return of 469% since 2000. S&P 500 index.

But the best part for investors is that both companies are prepared to continue their multibagger ways well into the future. With solid profitability, steady growth, and reasonable valuations, these niche leaders can add market-beating potential to any portfolio.

O’Reilly Automotive: Total Return of 8,790% Since 2020

O’Reilly Automotive, a vehicle repair retailer, has enjoyed 31 consecutive years of sales and profit growth. Despite these expanded operations, the company’s growth story may still be in the middle stages.

It currently has 6,217 stores, with 31 in New York, one in Maryland, and none in New Jersey or Delaware. This leaves the company with plenty of room to continue expansion in the Northeast. Although it has a significant store count in Texas (831), California (589) and Florida (290), the densely populated Northeast could support hundreds of new stores and the company plans to build a new distribution center in the region. It’s a plan.

O’Reilly has also expanded into other countries in North America. In 2019, it acquired Mexican chain Mayasa Auto Parts, adding a total of 21 stores. And in January of this year, it acquired Canadian retailer Vast-Auto, which has 23 stores. Although it’s taking a slow and steady approach to these new international markets, management sees potential for hundreds, and ultimately thousands, of stores in the long term. These new expansion opportunities will mark our 20th consecutive year of expansion, adding at least 149 stores each year.

The reason these expansion plans look so promising to investors is that O’Reilly’s return on invested capital (ROIC) is one of the highest in the market at 67%. The company measures the net income it generates compared to its debt and equity, giving it the fifth-highest ROIC in the S&P 500, indicating it is adept at growing its store count profitably.

What are the most important cherries for investors? The company has consistently reduced its share count by nearly 6% per year over the past decade, establishing itself as one of the most shareholder-friendly companies. O’Reilly’s market average price-to-earnings (P/E) ratio is 24, so O’Reilly seems like a perfect example of a premium business trading at a fair price.

Since 47% of sales come from professional service centers that supply parts, the company will grow despite the continued shift to electric vehicles (EVs).

Image source: Getty Images.

Snap On: 1,790% total return since 2020

O’Reilly is a leader in selling aftermarket auto parts, and Snap-on is a leader in providing the tools and other equipment professional mechanics need to install those parts. Snap-on sells more than 70,000 unique products, including power tools, vehicle lifts, software diagnostics for machinery, and rugged custom tools for commercial and industrial applications.

This company is by no means a hyper-growth stock, with sales growing 5% per year over the past decade. However, this slow and steady sales growth has been coupled with a surge in the company’s net profit margins, with earnings per share (EPS) nearly tripling over the period.

SNA Revenue (TTM) Data from YCharts TTM = Trailing 12 Months.

Since 2014, Snap-on’s net profit margin has increased from 11% to 20%, highlighting the company’s strong pricing power and improving operating efficiencies. This pricing power is the result of our leadership in our niche market, providing us with a broad competitive moat as a one-stop shop for our customers’ most important needs.

Despite the importance of Snap-on products to mechanical engineering, the market continues to be concerned about the company’s future as the world transitions to EVs and cars become filled with advanced technology. These concerns have led to the stock trading at just 14 times earnings, meaning it is priced with virtually no real growth at all.

CEO Nicholas Pinchuk believes these fears are overblown. Approximately 80% of today’s automotive repairs do not involve the powertrain (the engine, transmission, and components that transmit power to the ground), so for these repairs, it makes little difference whether the vehicle in question is electric or non-electric. doesn’t exist. Internal combustion engine. Additionally, the increased level of compartmentalization in modern cars means mechanics must remove more parts to access parts needing repair, which requires more snap-on tools.

Additionally, as the complexity of automotive technology increases, the company’s software and computer-based diagnostics will become more important over time. These high-margin solutions will help Snap-on maintain net margins well above the industry average, and will position the company well for success amid the ongoing shift to EVs.

As Snap-on continues to grow its software and diagnostics lines, its ROIC (currently 17%) continues to improve, making the company a strong candidate for outperformance.

Snap-on is also shareholder friendly. It pays a dividend yielding 2.7% at the current share price and has repurchased about 1% of outstanding shares each year for the past 10 years. These returns for investors, along with the company’s essential products and top-tier profitability, make Snap-on a great buy today. This is especially true as prices become more ambiguous in the market.