Somehow, a lot of the best stocks manage to slip right by individual investors. There the company is, posting massive gains, supposedly right in front of our eyes. Yet, by and large, they go unnoticed by the average Joe.

Institutions are often onto them, though. For instance, one compelling stock most individual investors probably haven’t heard of is owned almost entirely by institutions.

And these big investors have certainly profited. During the past five years, the stock delivered a gain of more than 240%, or about 28% a year, besting the S&P 500 by nearly 11% per year.

Well, I think it’s high time individual investors know about LKQ Corp. (Nasdaq: LKQ).

Perhaps LKQ has gone unnoticed because of the decidedly “unsexy” business it’s in: replacement parts and systems for damaged cars and trucks. These include things like bumper covers, lights, engines and engine parts, wheels, steering and suspension systems, seats and seat components — pretty much anything you’d find in a car or truck.

LKQ gets much of its inventory from severely damaged vehicles it buys at salvage auctions — in some cases, parts are refurbished or completely remanufactured. The firm also stocks so-called aftermarket inventory, consisting of new parts produced by companies other than the original equipment manufacturers.

A big distinguishing factor for LKQ is its extensive distribution network, which is made up of about 500 locations nationwide, according to Morningstar. The firm has been building up this network for more than 15 years through organic growth and a torrent of acquisitions. In its latest annual report, LKQ estimates it bought 150 rivals since it began operations in 1998.

The result over time: about a 20% share of the $22 billion replacement auto parts industry.

At this point, revenues are approaching $6 billion a year, compared with barely $2.1 billion in 2009 and just $425 million in 2004. Earnings per share (EPS) are currently $1.08, versus $0.45 in 2009 and $0.12 in 2004.
    
All this has been more than enough to make LKQ the undisputed leader and sole national player in a highly fragmented industry populated mainly by tiny independent operations. Indeed, LKQ has essentially no competition, several analysts say.

Another factor highly in LKQ’s favor is its close ties to insurance companies, who now call most of the shots on covered car repairs. And fortunately for LKQ, insurers push repair shops toward recycled, rebuilt or aftermarket parts since they’re up to 50% cheaper than new parts.

In fact, insurers often refer shops directly to LKQ. Conversely, LKQ is the insurance industry’s largest buyer of scrap vehicles being sold to reduce losses on claims in which vehicles are totaled.

#-ad_banner-#LKQ wisely goes out of its way to nurture this give-and-take relationship. For instance, the firm often reviews shops’ repair estimates for opportunities to substitute used parts, thus gaining business for itself and helping insurance companies reduce their costs. It also provides price quotes to help insurers come up with their own estimates and more quickly settle claims.

Because used vehicle parts isn’t much of a growth industry, LKQ will need to keep a steady pace of acquisitions to continue expanding its business and profits. This shouldn’t be a big issue, though, since there’s still so much of the market left to conquer and LKQ doesn’t have any serious competition when bidding on operations it hopes to acquire. So it can usually pick and choose from among the best available companies without having to overpay.

Just this past January, for instance, LKQ completed a $450-million buyout of one of the few larger industry players, Keystone Automotive Operations, Inc. The price tag seems quite reasonable considering Keystone is projected to generate total revenue of $700 million and an EBITDA (earnings before interest, taxes, depreciation and amortization) margin of 10% in 2014, excluding restructuring and acquisition-related charges.

Risks to Consider: A couple decades ago, the federal government enacted legislation requiring companies like LKQ to record vehicle identification numbers for most their parts. The law isn’t being enforced, but if it was, it could be a painstaking and costly burden, Morningstar warns.

Action to Take –> Growth through acquisitions can’t be sustained indefinitely, since eventually there’ll be few or no deals to be made. But in LKQ’s case, this shouldn’t be a problem for years, considering how long the firm has taken to get where it is now and the large amount of market share that’s left to gobble up. Thus, the firm is positioned to maintain the 24%-a-year growth rate in EPS it achieved during the past five years. Assuming an earnings multiple in the historic range of 24, this gives the stock 160% upside in the coming five years to $76 from about $29 now.

After running up for several years, LKQ is actually down nearly 13% year-to-date, so investors are getting a better deal at this point. They might want to take advantage of the pullback now, since the stock is still trading nearly a couple dollars above its 50- and 200-day moving averages — a sign the price could soon be headed higher.

LKQ has turned its industry on its head by swallowing up competitors and mutually beneficial partnerships — it would be hard to argue that this firm isn’t a game-changer. My colleague Andy Obermueller is the king of finding the next game-changing stock. In fact, he just released a report on the subject called, “The Hottest Investment Opportunities For 2015.” For more information on companies like LKQ, click here.