With the involvement of various activities in the operations of AutoZone, AutoZones stakeholders have had an increase in their earnings following the appreciation of prices since 1997 averaging an annual return rate of 11.5%. With consideration of the previous five years, AutoZones stock cost is increasing with each passing day. The stock price was $125 in the year 2007 1st February compared to 1st February 2012 which was $348, thus implying an increase in the stock price which is in five years. The increase was as a result of the share repurchase program. As a result of the rise in the automobile usage among other machinery, more repairs were needed. Thus, the AutoZones price is still increasing tremendously (Brenner & Eades, 2017).
Moreover, the financial statements relating to AutoZone imply on the performance of the stock price. The first commercial measure that refers primarily to the stock price performance in the AutoZone operations is the earnings per share (EPS). Earnings Per Share is fundamental in maintaining the balance and the progress of the stock price, which has been growing considering the changing times and the evolution of the companys operations. There is significant indication concerning the measure that implies on the increase in productivity. Also, another financial action involves the price of earnings to growth ratio (PEG). The PEG ratio is decreasing which implies on a good sign of the company and the involved stakeholders or investors. The decrease signifies that there is higher value for AutoZones business since the investors will pay less for the units of earnings growth.
However, Stock repurchases work by returning cash to the investors. The recovering involves buying shares back which reduces the number of shares a company gives and increases the value of the stakeholders and raise the stock prices equally. A corporate would choose to use this tactic since it helps on several issues. It helps prevent hostile takeovers, imply on the companys strength, hide poor performances, and also create tax-efficient methods to return the money to the investors. Share repurchasing impacts the EPS by automatically increasing it as it reduces the number of shares. Also, it affects ROIC. ROIC plays a significant part in evaluating the companys performance (Brenner & Eades, 2017). As a result, a share repurchase will reduce the cash holdings of AutoZone thus reduce the total stakeholders equity and total assets which means ROIC will develop and improve after the repurchasing of shares.
On the other hand, with the assumptions maintain the other conditions constant, AutoZones stock price relies on the Net Income since it ensures the creation of free cash flows (FCF). As the company guarantees its usage of the FCF is to repurchase the stocks, the capital remained constant since 2007. Thus, the price of the stock depends on the outstanding stock. AutoZone had 69844 shares outstanding in 2007, while in 2007 the quantity reduced to less than 44000. It increased the EPS while the price of the stock also increased. Thus, more outstanding shares render low share price, while small exceptional shares boost the share prices.
Correspondingly, there is a different alternative use of the cash flows that would develop AutoZones activities. They involve either by acquisition or by opening new workshops or stores. The growth by acquisition would base on the predicament concerning the U.S market growth related to auto spare stores. The purchase would ensure that the retail outlets concerning auto parts cover the free attractive locations in the U.S. Also, it would maintain the increase in profitability that in opening new stores. They would have a competitive advantage. Concerning the opening of new auto parts stalls or shops, the override would ensure a competitive lead and creation of access to the local and international markets. The overseas investments by AutoZone would be profitable guaranteeing an expansion.
To sum everything up, concerning Johnsons holdings of AutoZone shares, I believe that he should keep the assets in the organizations. The financial records of AutoZones imply that the company is improving and developing which is most vital for EPS, ROIC, stock price, and the investors. The investors of the AutoZone company have been acquiring high prices appreciations which I believe will continue in the future. Despite Lumperts liquidation of all his shares, the company had a significant value hence would still develop (WANG, 2016).
Eades, K. M., Brenner, J., & Eades, K. M. (2017). AutoZone, Inc. Darden Business Publishing Cases, 1-17.
WANG, F. (2016). Study on the Chain Operation of Automobile after Sales Service Industry. DEStech Transactions on Economics, Business, and Management, (apme).
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