AutoZone (NYSE:AZO) is the largest after-market auto parts retailer in North America. While there are plenty of e-commerce up-and-comers as well as brick-and-mortar competitors, AZO continues to dominate the sector.

As with most old school, brick-and-mortar industries, many feared that the traditional auto parts stores would succumb to online stores that were able to out compete on price, even if there was a lag in delivery time.

However, that’s proving not to be the case. As of May, AZO had 5,686 stores across the United States and Puerto Rico. And AutoZone added 35 new stores in the past year.

Those stores are delivering enough sales growth — and particularly earnings growth — to earn AZO stock an “A” rating from my Portfolio Grader tool.

These earnings also earn AutoZone stock a place on my Top 5 Stocks for Growth Investor.

AZO Stock Benefits From DIY Mentality

Why? The answer is simple. It seems that most people that buy auto parts and materials prefer laying their hands on the products.

It also might be that most DIY-ers know that they may need to make a second trip for another tool to get the job done. Like home improvement stores Home Depot (NYSE:HD) or Lowe’s (NYSE:LOW) there’s an advantage to having a big selection of supplies around when someone is ready to start a project.

Also, many folks that are on a budget get the tools and supplies they need as they need them, rather than buying them ahead of time. This kind of thinking is why same-store sales remain strong for AutoZone.

It also helps to have staff present to help you make sure you’re getting the right part. And when it comes to used batteries or other parts, AZO allows you to drop them off in exchange for store credit toward new parts.

Going Global

The other piece of the equation, as I’ve explained in Growth Investor, is its operations outside the U.S. AZO has 576 stores in Mexico and 25 in Brazil.

Both of those markets are great places for a U.S.-based firm in this sector to establish a presence. AZO knows how to do the market research, sort out supply chain challenges and manage inventory.

Chains with such breadth and depth are especially valuable to customers in regions that aren’t used to having such convenience available. And given the grinding recession that has been going on in Brazil, DIY work on cars is a very popular way to save some money.

What’s more, the fact that AZO is slowly entering Brazil shows that management is smart about targeting new markets. It can get an idea of how well the stores are doing and products are popular to better understand the customers. This in turn gives AutoZone increased confidence.

It seems to have already found the model for the U.S. and Mexico. And remember AZO is not a franchise operation — all the stores are directly owned by the company.

AutoZone Stock Valuation

AutoZone may all be all about vehicle components, but, unlike a car, AZO stock is worth more than the sum of its parts. AZO is up almost 38% year-to-date and 50% in the past year. While strong fundamentals are certainly contributing to that, another key factor is buying pressure from big, institutional cash on Wall Street.

That’s a major reason AZO stock gets an “A” from me (and there’s a couple of other things you should be looking for in a stock at this juncture, too).

With all these strengths, it’s no surprise that my Portfolio Grader rates AZO as a “Strong Buy.” But what may be surprising is that after all the growth we’ve seen so far this year, AZO stock still has a trailing price-to-earnings ratio just a hair above 20.

— Louis Navellier

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Source: Investor Place