Is Autozone A Buy After Same Store Sales Increase 12.3%?
Back in September I showed you 1 Reason To Avoid Autozone Stock to protect your retirement portfolio…
Today, I want to give you an update on them and answer – Is Autozone A Buy After Same Store Sales Increase 12.3%?
You can read the past article on Autozone in full by using the link above…
But if you don’t want to; here’s a quick recap of why I told you to avoid its stock in the September.
1 Reason To Avoid Autozone
It’s Got An Enormous Amount of Debt
Normally in these articles I talk about things like valuation, profitability, cash flow, the affects coronavirus is having on a company’s financials, among other things.
But frankly none of those matter with Autozone (AZO) due to its enormous debt load.
As of this writing Autozone is a $26.5 billion market cap automotive do it yourself store where you can buy parts to fix your vehicles.
Its most recent quarterly data showed it has $510 million in cash. While it has $8.14 billion in short term and long-term debt and capital leases.
Its debt is 16X higher than its cash levels. And total liabilities make up 112.7% of its current balance sheet.
It has so much debt that after you subtract total assets from total liabilities that you get a value of less than $0.
This is rare when you see this but it’s horrible.
I want to invest in safe stocks that will be around for decades to help me build wealth over the long term. This helps insure I lose as little money as possible over time.
Typically, this means I invest in companies that have little to no debt compared to their cash and equity.
And I look to invest in companies with a debt-to-equity ratio below 1… But not negative like Autozone’s is.
It can support debt at its current levels because its so profitable on an operating profit, net profit, and free cash flow basis. But its debt levels still bring an enormous amount of risk to owning Autozone shares right now.
Especially with the massive uncertainty in the vehicle market right now due to the coronavirus.
For this reason of its huge debt, I recommend you avoid investing in Autozone – even though it earns large profits and cash flows.
This thesis to avoid Autozone stock continued to play out after it released its most up to date quarterly earnings on December 8th, 2020. Sort of…
- Same store sales rose 12.3% in the year-to-year quarterly period.
- Overall sales rose 12.9% to $3.2 billion in the yea to year quarterly period.
- Operating profit rose 23% to $615.2 million in the year-to-year quarterly period.
- And earnings per share rose 30.1% in the year-to-year quarterly period to $18.61 per share on a diluted basis – including all shares and options.
This is all fantastic.
So why am I saying this thesis to avoid its stock continued to play out above?
Because it still has way too much debt.
It has total debts – including operating leases – of $8.04 billion compared to a market cap of $26.8 billion.
Meaning its debt still makes up 30% of its market cap.
And its still got a negative equity position on its balance sheet meaning its total liabilities are still more than its assets.
These still make the stock far too risky for me to recommend even though they’re producing large and growing profits.
For this reason, continue avoiding Autozone for now even though its crushing earnings.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.