In the last 10 years, the S&P 500 has done historically well for investors, producing an annualized total return of 13.2%. That's well ahead of the 10% yearly average over the very long term.

But investors will notice that even some boring businesses have crushed the benchmark's return. Look at aftermarket auto parts retailer O'Reilly Automotive (ORLY -0.68%). Its shares have increased at a compound annual rate of 20.4% in the past decade.

Is this consumer staples stock a no-brainer buying opportunity in 2025?

Favorable traits

With trailing-12-month revenue of $16.4 billion, O'Reilly definitely derives an advantage from its scale. Its deep supply chain, broad store footprint, and wide product availability allow it to better serve its customer base whose urgent concern is getting their cars up and running quickly. This is especially true when compared to smaller rivals.

O'Reilly doesn't benefit from any notable secular trends, like the artificial intelligence boom, digital advertising, or cloud computing, for example. However, it does have some favorable industry tailwinds working in its favor.

For starters, O'Reilly's addressable market continues expanding. The number of registered vehicles in the U.S. rose 13.9% between 2012 and 2022. This essentially gives the business a growing pool of cars that will someday need upkeep.

Additionally, the average age of these vehicles is slowly increasing. During 2012 to 2022, that number climbed 9.9%. This is great for O'Reilly, as older cars are past their original manufacturer's warranty. Thus, these vehicle owners will need to turn to aftermarket parts suppliers.

Demand is also durable, making O'Reilly somewhat of a recession-proof enterprise. People still need working cars when economic times are hard. And when times are robust, people tend to drive more, increasing the wear and tear on their vehicles.

Financial performance

Those durable demand trends have supported truly remarkable fundamental performance for O'Reilly. In 2023, the company reported a 7.9% year-over-year same-store sales (SSS) increase. To see this figure go higher is any retailer's prime objective. In this case, O'Reilly has grown SSS in an unbelievable 31 straight years, with 2024 looking like it'll continue the streak to 32.

Just think about the various roadblocks that have occurred during that time. There was the dot-com bubble, subprime mortgage crisis, Fed taper tantrum, COVID-19 pandemic, and inflationary pressures. O'Reilly has figured out a way to keep humming along.

Generating strong profits and cash isn't an issue. The company's operating margin has averaged a superb 20.6% in the trailing-five-year period. This is supported by the ability to obtain merchandise at favorable costs and exhibit resilient pricing with customers.

Management expects the business to produce $1.8 billion to $2.1 billion in free cash flow in 2024. This is what's left over after the company invests in new store openings and supply chain upgrades. Executives have utilized the cash to aggressively buy back stock. Just in the last 12 months, O'Reilly's diluted outstanding share count was reduced by almost 4%.

High expectations

After such a tremendous performance historically, it's not too surprising that the stock might be overvalued. Shares currently trade at a price-to-earnings ratio of 29.6. That's a 24% premium to its trailing-10-year average, and close to the peak during that time, so the valuation is historically expensive.

The market has become very appreciative of this business. That makes sense, given O'Reilly's consistent performance over the years. But it gives management almost no room for error. Any financial updates that come in below estimates can abruptly send the stock lower.

O'Reilly has proven that it's a wonderful business. But the valuation is certainly stretched. Investors might want to wait for a pullback before adding this company to their portfolios in 2025.