Will O’Reilly Automotive (ORLY) stock recover from a 2-year low?

O’Reilly Automotive, Inc. (NASDAQ: ORLY) stock rebounded over 10% after hitting a 2-year low of $251.52 on Monday. The investors remained concerned about the company’s debt position and its future growth trends. This raised doubts about the company’s ability to gain market shares and capitalizing on competitive advantages.

In the past, the company has gained market share in its existing markets and grown business in new markets by focusing on dual market strategy and the core O’Reilly values, including superior customer service and expense control. The company expects to continue gaining market share in the future and be a dominant auto parts provider in all the markets.

O’Reilly intends to continue to consolidate the fragmented automotive aftermarket. In 2020, the company plans to open about 180 net, new stores, which will increase its penetration in existing markets and allow for expansion into new, contiguous markets. This is lesser than the 200 domestic stores opened during 2019.

For the fourth quarter, the company reported a 14% jump in earnings backed by higher sales and a 4.4% increase in comparable-store sales. O’Reilly continued to see ongoing inflationary pressures in expense structure. As of December 31, 2019, the company had cash and cash equivalents of $40.4 million while the total debt stood at $5.86 billion.

The company is vulnerable to the impact of the Covid-19 coronavirus outbreak has on the economy and on daily life in general. The spread of the virus is likely to increase the isolation or social distancing of the public, which leads to less car usage and less demand for repairs. This could impact the company’s business of retailing automotive aftermarket parts, tools supplies, equipment, and accessories.

In the long-term, O’Reilly will be impacted by the duration of the coronavirus pandemic, the weak balance sheet, and the competitive threat from Amazon (NASDAQ: AMZN). O’Reilly remained an attractive proposition backed by its profitability trend but higher debt, global pandemic, and competition will be a major concern for the long-term.

The stock has opened higher but changed course to the negative territory in the mid-afternoon on Wednesday. The shares, which have fallen over 28% in the past month, are undervalued at the current levels with a bullish pattern trend. The performance outlook is negative in the near-term and long-term.