42x with a boring business – could it happen again?

Visitors to the US will notice an AutoZone outlet in virtually every town.

The retailer of automotive parts and accessories operates over 7,000 stores. It is hard to imagine a more boring business.

Yet since 2005, AutoZone has increased its earnings per share by 21x.

The share price is up 42x over the same period.

How did this happen?

And does the UK today hide similar opportunities?

There is opportunity in being behind

Undervalued-Shares.com has reported ad nauseam about the attractiveness of the UK market.

One reason the UK market trades at persistently low valuations is that boards of publicly listed British companies have often been slow to adopt global best practices – particularly in capital allocation.

Dividends have their place, but there are still too many cases where UK PLC makes them the primary focus in circumstances where it clearly shouldn't.

If a company with stable or growing earnings is trading at a single-digit price/earnings ratio, there is usually little logic in allocating further cash to dividends – especially in an environment when gilts yield around 5%.

Why, then, do so many UK companies still prioritise dividends when buying back stock would often be far more effective?

Part of the answer lies in the ongoing outflow of money from actively managed UK investment funds.

UK active fund managers have suffered nine consecutive years of outflows, including 46 of the last 47 months (as of December 2025). For managers who must constantly deal with outflows, dividends from investee companies become a lifeline – helping them manage outflows while keeping the shrinking remainder of their business afloat.

These dividend-oriented funds dominate the shareholder registers of too many publicly listed UK companies.

It's a vicious circle. Parts of the UK equity market are effectively caught in a slow, de facto liquidation. With such self-destructive mechanisms playing out in plain sight, it's hardly surprising that pessimism about the UK economy and its capital markets runs so deep.

And yet, it is precisely in such environments that exceptional long-term investment opportunities tend to emerge.

The US has shown this before. One particularly instructive example can serve as both education and inspiration.

Car parts made a fortune

Even back in 2005, AutoZone (ISIN US0533321024, NYSE:AZO) would have been considered little more than a fairly boring company. It wasn't the kind of company that growth-oriented investors would have rushed to own.

What it did have, however, was steady cash flow.

After running the numbers, management concluded that one of the best uses of that cash was to buy back stock. Where appropriate, they also made disciplined use of financial leverage. As a result, since 2005 the company has deployed, on average, 120% of its annual income into share buybacks. That headline figure masks year-to-year variation, reflecting management's judgment and flexibility in tweaking capital allocation along the way.

The results are striking: AutoZone bought back 80% (!) of the shares that were outstanding in 2005. Earnings per share are up 21x, and the share price has increased 42x.

The chart is a sight to behold – even after pulling back from its peak, the stock remains up 42x.

AutoZone.

Who wouldn't have wanted to be invested in a company like this?

Had AutoZone been a UK-listed company, however, management would likely have allocated a substantial portion of its free cash flow to dividends instead. The long-term outcome for shareholders would almost certainly have been very different.

So can anything be done about this – and will anything change?

The UK market may follow Japan's lead

Governance standards and management practices change slowly. In many cases, they require a nudge (or two) from outside forces.

Japan provides a useful parallel. For years, outdated governance practices left many smaller and medium-sized public companies trading at ridiculously low valuations.

Because of Japan's cultural consensus-driven environment, it took activist investors years to gain traction. Over time, a trickle of activist engagements became a stream, and eventually a wave.

The recent surge in activist activity in Japan has contributed directly to record levels of share buybacks – an important factor behind the revival of the Japanese equity market.

The UK will not follow Japan's path one-for-one – and it doesn't need to.

The UK already offers relatively strong shareholder rights. Barriers to activism are lower, and overall company quality is arguably higher. From that perspective, the UK needs an evolution, not a revolution.

What's still missing includes:

• Buybacks becoming a proper tool.
• More aggressive and better-structured executive incentivisation.
• Older boards adopting global best practices in governance.

Change is already underway.

In January 2026, Undervalued-Shares.com Lifetime Members received an exclusive background report on a brand-new UK activist case. Shortly thereafter, the company's entire board resigned. The activist had identified weaknesses in governance, executive compensation, and capital allocation, and once it became clear that other shareholders agreed, the incumbent directors fell on their sword.

More such cases will follow – sometimes through activism, and sometimes through shifting standards. Importantly, not all activism is hostile. Much of this revolution will occur quietly, through constructive boardroom engagement.

My view is that what took nearly a decade in Japan could unfold over 3-5 years in the UK.

Likely areas of change include:

• Capital allocation.
• Corporate action (M&A).
• Investor communication.
• Removing blockers to change.
• Greater awareness of global best practices.

There is much to do, but also many potential quick wins. This process is already underway, and I'm far from the first to highlight it.

A future buyback-driven multi-bagger?

Of course, buybacks should never come at the expense of necessary maintenance capex.

They should also never be used simply to "support the share price". Buybacks are a form of reinvesting in the business, not a short-term fix for a lagging share price.

Execution matters. Sporadic or symbolic buybacks do more harm than good. When companies commit to buybacks, they should be part of a clear, consistent, long-term strategy.

While UK buybacks have already reached record nominal levels, they remain modest relative to the overall size (and undervaluation) of the market.

Which brings us to the obvious question: does the UK harbour a future equivalent of AutoZone?

A candidate emerges

Earlier today, I published a new research report for Undervalued-Shares.com Members.

It features a UK-listed company that:

• Has lost 50% of its value from its peak.
• Would trade at 3x earnings if its recovery unfolds as expected.
• Is led by a rare UK CEO who truly understands capital allocation.
• Plans to return substantial capital to shareholders.
• Is transitioning to an American-style, capital-light model capable of generating tons of cash for buybacks.
• Has a multi-billion-pound market cap and ample liquidity.

This opportunity hasn't gone entirely unnoticed. This company was previously compared to a US peer that has delivered a 700x (!) return since the mid-1990s.

Many analysts, however, identified the story too early – and then watched the shares halve as plans took longer to materialise.

A key part of the value of my report lies in its timing. March/April 2026 should bring meaningful catalysts. The stock could begin to recover – or potentially re-rate altogether.

From today's starting point, the upside could prove even larger than before.

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