Before market open this past Tuesday, auto-parts retailer Autozone (NYSE:AZO) released better-than-expected Q3 earnings.

In fact, the company beat the consensus estimate by a respectable two cents (earning $2.17 per share) thanks to solid sales and improved "supply chain efficiencies".

But does this recent bit of good news mean that this is the right time to buy the stock? I think not.

In fact, there are several issues facing Autozone that I find worrying:

• Have you ever been in one? The handful that I've been to looked pretty drab and dull to me, and in no way motivated me to spend money. Frankly, in terms of decor the stores remind me of how Pep Boys (NYSE: PBY) used to look.
• Next, check out the company's same store sales. They were up just 0.4% for the quarter. How would the overall numbers have looked had Autozone not opened 33 new stores in the quarter?
• According to Yahoo! Finance, the company grew by roughly 33.3% over the past five years. Over the next five years it's expected to grow at about 12.5% per year. In short, I worry that if this deceleration in growth occurs the excitement that has surrounded the stock over the last year may begin to wane.
• How will rising gas and insurance prices impact the company, particularly during this upcoming summer selling season where the company should otherwise do quite well?
• How will Autozone fare over the long-haul with retailers including Wal-Mart (NYSE: WMT), Target (NYSE: TGT) and a number of other big-name, deep-pocketed discounters selling automotive parts and services?

Why I Could Be Wrong
There are two sides to every story, and to that end, there are several reasons why I could be wrong in my call:

• Momentum has been behind the stock, and the company still has a broad base of retail and institutional investors.
• The U.S. population continues to grow, and by extension this should mean more drivers and more potential customers.
• The company has a knack for opening stores in densely populated areas, and while I don't like the decor, the stores are generally clean and more attractive than some of the other chains out there.
• Autozone has a good selection of merchandise - that is, a generally wider selection than some of the discount chains I mentioned above.
• The company has bought back stock in the upper end of it's 52-week trading range, and that is, in my mind, a sign that the board and management think the stock could move higher.

The Bottom Line
I tried to present both sides of the story above, but because I am skeptical that the company will be able to generate the kind of earnings momentum it has in the past, I am concerned that the share price may start to wane.

I am also concerned that the near-term economic outlook and the price of gasoline could impact consumer purchases for automotive goods and services.

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Tickers in this Article: AZO, WMT, PBY, TGT

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