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AutoZone (AZO) is a great stock. It is a high quality business that has compounded earnings over time and the stock price has corroborated that. I have followed it closely for years and owned it from about $2000 to $3000. But valuation has gotten out of hand – as it has in many areas of the market. In that respect, AZO is symptomatic of the lack of concern in the market as a whole with valuation.

AZO reported an excellent 4QFY25 a few minute ago. Domestic comps were stellar at +4.8%. For the full year they were +3.2%. Operating income of $1.2 billion and EPS of $48.71 were also excellent – though about the same as the year ago period.

The problem here is valuation. AZO earned $144.87 in FY25 ended August 30, 2025. They earned $146.14 in FY24. Assuming they earn about the same in FY26, the multiple on current year earnings is 28x using Monday’s closing price of $4121. That is too high for this stage in the company’s growth cycle.

AZO is just one stock but the example could be multiplied many times over. In Sunday’s “How To Navigate A Bubble”, I focused on the technical reasons that suggest we are in the late stages of a bubble as fewer and fewer stocks advance, masking a lot of weakness beneath the surface. But I also referenced valuation and sentiment and AZO is a prime example of overvaluation. AZO will be fine over the long term but in the short term the stock has gotten ahead of the fundamentals.

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How To Navigate A Bubble
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