Is AutoZone Stock A Real Bargain?

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AutoZone (AZO) stock trades at 19.8 times earnings, compared with 22.8 for the median S&P 500 company. Over the past year, the shares lost 17.5%, while the S&P 500 returned 13.3%. That is either a good business on sale or a fair price for one whose profit has stalled. AutoZone is a bargain only if it keeps growing as do-it-yourself buyers cut back, and if its new stores start to pay off. So which of AutoZone’s customers are still buying more?

Repair Shops Are Buying More From AutoZone

Professional repair shops are. AutoZone’s domestic commercial sales, its sales to those shops, grew almost 11% in fiscal 2026 to just under $5.8 billion, management said on the September 22 call. Management credits better parts availability, more Mega Hub coverage and its Duralast brand.

Do-it-yourself buyers went the other way. During fiscal Q4 2026, domestic DIY same-store sales fell 0.6%, while domestic commercial sales grew 8.6%, a slower pace than for the full year. The 8.6% is total commercial sales growth, not a same-store figure. Domestic same-store sales as a whole grew 1.6%. Management said it sees DIY customers deferring purchases and trading down.

When one part of a business stops growing, another part has to carry it. For example, Tesla drew 98% of last quarter’s deliveries from the Model 3 and Model Y, and its deliveries fell two years in a row. Read Trefis Big Story: How Tesla Blundered.

Across the whole company, revenue rose 7.4% in fiscal 2026, compared with 2.4% the year before. Free cash flow edged up to $1.82 billion, from $1.79 billion.

AutoZone’s Margin Has Shrunk Two Years Running

AutoZone kept 18.3% of its sales as operating profit in fiscal 2026, compared with 20.5% two years earlier. The metric stood at 19.1% in fiscal 2025, and the average of the three years is 19.3%. The company posted net income of $2.57 billion in fiscal 2026, up from a year earlier but below the $2.66 billion of fiscal 2024.

At the same time, AutoZone accelerated its store openings to 374 in fiscal 2026, up from 304 the year before. Management said its returns on capital have been pressured as store growth accelerated, and it assumes a new store earns roughly nothing on its investment in the first year.

AutoZone Is Still Paying For Its Store Build-Out

The current P/E is based on the profit of a company in the middle of a spending push. AutoZone plans about $1.65 billion of capital spending in fiscal 2027, and about 400 new stores.

The operating margin rose to 20.0% in fiscal Q4 2026, from 19.2% a year earlier, but only because of a smaller non-cash inventory charge. Excluding that charge in both years, management said operating profit would have risen 4.4%, a slower pace than the 5.6% rise in sales. That 4.4% also includes a $96 million tariff refund AutoZone received in the quarter.

Management has set a bar for the new stores: a return on capital of about 15% by the end of a store’s fourth year, and over 20% by the end of its sixth. So far, management says, the new stores are slightly ahead of the sales and operating profit it expected. If they take longer to mature, a buyer at today’s price is left with a growing retailer whose profit keeps lagging its sales.

What A Buyer Of AutoZone Stock Is Betting On

A buyer at this price is not betting on a business the market has overlooked. AutoZone’s sales and cash are growing, but its full-year margin is still shrinking. The bet is that the company fixes that margin as its young stores mature, while repair shops keep buying more.

Management expects domestic commercial sales to grow at a high single to low double digit rate in fiscal 2027. AutoZone’s fiscal Q1 2027 report, expected in December 2026, will give the next reading on both: how fast domestic commercial sales grew, and what share of sales AutoZone kept as operating profit. It will also be the first report after Chief Financial Officer Jamere Jackson leaves on November 25, 2026, to become FedEx’s finance chief.

Does This Mean You Should Act On AZO?

Our purpose is to inform you with unique data so you make the right investment decisions. That said, betting on a single stock is always risky, no matter which direction you choose.

There is a smarter approach. Since its inception, the Trefis High Quality (HQ) Portfolio has returned 105%, beating the benchmark that combines the three major indices – the S&P 500, S&P Mid-cap, and Russell 2000. And it did so without taking the concentrated risk that comes with do-it-yourself stock picking. If that is how you want to invest, the HQ Portfolio is the place to start.

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