Q#1. How has AutoZone’s stock price performed over the previous five years? What other financial measures can you cite that are consistent with the stock price performance?
AutoZone’s shareholders had enjoyed strong price appreciation since 1997, with an average annual return of 11.5%. Over the previous five years, AutoZone’s stock price has increased dramatically. On February 1. 2012 the stock price was $348 compared to the $125 on February 1. 2007. The strong price appreciation resulted from several occurrences; some of them are U.S. economy recession and share repurchase program. Auto-part business was somewhat counter-cyclical. Company’s growth and stock price were directly related to the economy and number of miles a vehicle had been driven. As the age of car increased, more repairs were required. Because of these reasons, AutoZone’s stock price was significantly improving from 2008. AutoZone’s financial statements reflect the stock price performance. Net sales have increased for 30.85% from 2007 to 2011. Cost of sales also increased during that period, but at lower rate of 27.30%, what helped in additional improvement of gross profit. AutoZone’s increasing operating profit indicates the efficiency and profitability of the company. Further, the increase of operating profit led to the slight increase of operating margin, from 17.10% in 2007 to 18.52% in 2011. One financial measure that is strongly related to the stock price performance is EPS. EPS, a key driver of stock price, have been increasing at an extremely high rate. From 2007 to 2011, basic EPS have increased for 131%, and diluted EPS have increased for 128%. Another important financial measure is PEG ratio. PEG ratio is been constantly decreasing, which is a good sign for the company and investors. Decrease of PEG ratio signals a greater value for AutoZone’s company, because its investors are going to pay less for each unit of earnings growth. Here is a table of financial measures...
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