Mar 2019: Autozone (AZO)

Time is a Friend

I really like the company AutoZone (AZO). I understand the business model: they sell car parts to people who want to fix up their own cars. I see AutoZone stores everywhere here in Southern California. AZO is currently a member of the S&P 500 index. The lens I use to view AZO is evaluating a business partner for managing an important business venture for me. And I have been impressed by the past 30 years of AZO’s performance. I don’t try to predict AZO’s stock price tomorrow. I don’t try to predict the financial results next quarter (or even next year). I’m not basing my view on any secret hidden information. Everything I like about AZO is based on information out in the open (you can verify everything below).

AZO is one of the most consistently improving companies currently in the S&P 500, based on the past 30 years of performance. Let’s start by looking at the diluted earnings-per-share.

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Introduction to Hardy Stocks

Rare Elephants

It is a rare and admirable characteristic for an individual to consistently improve over many years. Consistent improvement over many years requires a combination of discipline, vision, adaptability, teachability, resolve, and creativity.

Similarly, a company that consistently improves its financial performance over many years is a rare elephant. These companies should be enshrined in the Business World “Hall of Fame”. Unlike athletes, “Business Hall of Famers” can get better with old age, as they leverage advantages from an older era into a newer era. For the serious long-term buy-and-hold investor, identifying and studying these types of companies is a worthwhile endeavor.

Here is the simple question to frame a complex topic: which of the 500 companies currently in the S&P 500 has most consistently improved over the past 30 years? Which of these companies will continue to be great companies in the long-term future? That’s a great place to start. But since great companies are priced for continued greatness, there is a second important follow-up question: which of these rare elephants are priced attractively enough to consider for long-term investment?

Limiting our focus to the S&P 500 is an arbitrary limitation that emphasizes large market capitalization names (and exclude some smaller high-growth companies). But it is a worthwhile goal is to simplify a complex topic. Everyone knows the S&P 500. In the future, we have plenty of room to explore other avenues of analysis.

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