Why Autozone Stock Dipped on Tuesday

Shares of a car parts seller Autonomous Zone (AZO -1.37%) were trading 1.5% lower as of 12:40 p.m. ET Tuesday after it reported that both its fiscal fourth-quarter top and bottom lines missed expectations. The stock had fallen as much as 4.9% earlier in the session

When reporting earnings Tuesday morning, analysts had forecast that Autozone would report earnings per share of $53.53 on sales of just over $6.2 billion. Autozone came close to hitting sales estimates, reporting $6.2 billion. However, earnings came in lower at $51.58 per share.

Autozone Q4 earnings

Sales were up 9% in the period ending Aug. 31. However, this year’s Q4 was a week longer than last year’s Q4. Excluding the impact of the extra week, revenue would have been only 2.6% higher.

Sales also rose with 68 new stores in the U.S., as well as 31 and 18 stores in Mexico and Brazil. Excluding those effects, same-store sales rose just 0.7% in the quarter, with most of the growth coming outside the U.S.

Gross profit margins fell 21 basis points, while operating expenses rose 40 basis points. With net income squeezed from both sides, operating profits grew slower than sales, only 6%.

On the positive side, Autozone bought back about $710 million worth of stock in Q4 at an average price of $2,915 per share. Not only did the company retire that stock at a discount of almost 5% to the current share price, it also focused profits on fewer shares outstanding. That helped boost earnings per share by 11% year over year.

In fact, it was faster than sales growth.

Is Autozone stock worth buying?

Autozone shares jumped Tuesday as investors tried to reach a consensus on whether Q4 results were good news. Here’s my take on the situation.

Autozone stock is currently trading at 21 times earnings. The stock pays no dividend, management has provided no clear guidance, and even read in the most charitable light, its earnings growth rate is only half its P/E ratio — i.e., a price-to-earnings-to-growth (PEG) ratio of 2.0.

It’s too expensive. While Autozone remains a great company that performed well in Q4, Autozone warehouse It’s not a good deal yet and I don’t see any compelling reason to buy it.