Investors should realize that some of the best-performing stocks historically can come from all different industries. O'Reilly Automotive (NASDAQ: ORLY) proves this.

In the past decade, this boring retail stock has soared 581%. That gain is well ahead of the 224% total return of the S&P 500 index.

But more recently, it's been a story of pessimism. O'Reilly shares currently sit 13% off their all-time high (as of May 3), which was reached a few weeks ago in late March.

Does this make the stock a once-in-a-generation buying opportunity on the dip?

Focus on the big picture

O'Reilly reported its first-quarter 2024 financial results on April 24, and it looks like the market wasn't too pleased with the results. Revenue was up 7% year over year, totaling $4 billion. And diluted earnings per share of $9.20 represented an 11% gain. These two headline figures came in short of Wall Street expectations, sending shares lower following the announcement.

It's so easy for investors to get caught up with a single quarter's financial results. That might be the case with O'Reilly. Its latest numbers were still solid, in my opinion. Nonetheless, investors should always stay focused on the big picture.

O'Reilly is a truly wonderful business. One reason is that it experiences durable demand that isn't that sensitive to macroeconomic factors. People always need their cars to work, so that they can go to the office, run errands, or pick up the kids from school. This reality doesn't change.

This business has and will continue to benefit from long-running industry tailwinds that should support demand for some time. The average age of a car on the road in the U.S. steadily rises each year; it's now at about 12.5. That's an important trend to pay attention to.

The typical manufacturer's warranty lasts for three to five years. Because cars last much longer, they spend more time outside of that warranty. This is the sweet spot for O'Reilly, as it sells a broad array of parts and supplies to keep vehicles running longer.

Another tailwind is the simple fact that more miles are driven in the U.S. each year. To be clear, the figure rises by about 1% annually. But in the aggregate, this leads to greater wear and tear on vehicles. Again, this trend supports demand for a business like O'Reilly.

O'Reilly's financials

Despite what the stock's recent performance might indicate, O'Reilly is an extremely profitable enterprise. In the latest quarter, the company posted a gross margin of 51.2% and an operating margin of 18.9%, showing just how much revenue makes its way toward the bottom line.

O'Reilly's management team prioritizes investing in growth opportunities, mainly centered around opening new stores. Even so, the company still rakes in sizable amounts of free cash flow (FCF), totaling $2 billion in 2023. Executives reiterated their FCF guidance for this year, expecting to generate between $1.8 billion and $2.1 billion.

This financial windfall supports ongoing stock buybacks. O'Reilly's outstanding share count has been reduced by 5% just in the past 12 months.

Consider the valuation

Now that the stock is down double digits from its peak price, investors are being presented with a more attractive buying opportunity. Shares trade at a price-to-earnings ratio of 25.8. While that's lower than the stock's multiple of 30.3 in late March, it's still above its trailing-five-year average of 23.

I still believe O'Reilly shares are now more reasonably valued. But from a historical perspective, they trade at a slight premium. I wouldn't say the stock is a once-in-a-generation opportunity here, but it should be one that you consider adding to your portfolio today.

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Neil Patel and his clients have no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Down 13%, Is This Magnificent Stock a Once-in-a-Generation Investment Opportunity on the Dip? was originally published by The Motley Fool