Why Autozone Stocks Dropped on Tuesday

Auto Parts Dealer Actions Autozone (AZO -2.07%) traded 1.5% lower as of 12:40 a.m. ET Tuesday after reporting misses on both the top and bottom lines for its fiscal fourth quarter. Shares fell as much as 4.9% in early session

Heading into Tuesday morning’s earnings report, analysts had expected Autozone to report earnings of $53.53 per share on just over $6.2 billion in sales. Autozone came close to hitting the sales estimate, reporting $6.2 billion. However, its earnings fell to $51.58 per share.

Autozone Q4 earnings

For the period, which ended on August 31, sales increased by 9%. However, this year’s Q4 was a week longer than last year’s Q4. Excluding the impact of the extra week, its revenue would have been only 2.6% higher.

Also contributing to the sales numbers were 68 new store openings in the US, plus 31 and 18 openings in Mexico and Brazil, respectively. Stripping out those effects, the company’s same-store sales for the quarter rose just 0.7%, with most of the growth coming outside the US.

Gross profit margins decreased by 21 basis points, while operating costs increased by 40 basis points. With the bottom line tight on both ends, operating profits grew more slowly than sales, at just 6%.

In addition, Autozone repurchased approximately $710 million worth of stock in Q4 at an average price of $2,915 per share. Not only did the company retire those shares at a discount of nearly 5% to the stock’s current price, but it also concentrated the profits among fewer shares outstanding. This helped it grow its earnings per share by 11% year over year.

This was actually faster than sales growth.

Is Autozone stock a buy?

Shares of Autozone edged higher on Tuesday as investors tried to come to a consensus on whether fourth-quarter results were good news. Here’s my read on the situation.

Autozone shares are currently trading at 21 times earnings. The stock doesn’t pay a dividend, management hasn’t provided clear guidance, and even in the most charitable light, its earnings growth rate is only half the P/E ratio — meaning it has a price-to-earnings-growth (PEG) ratio of 2 ,0.

It’s too expensive. While Autozone remains an excellent company that had an excellent performance in Q4, Autozone stock it’s still not a good deal and I don’t see any compelling reason to buy it.