As of July 19, 2023, Advance Auto Parts Inc (AAP, Financial) has seen a day's change of 4.52%, with the stock price reaching $72.44. With a market cap of $4.3 billion and sales of $11.2 billion, the company's current GF Value stands at $210.14. According to GuruFocus Value calculation, Advance Auto Parts (AAP) is estimated to be a possible value trap, warranting investors to think twice.
Advance Auto Parts is one of the largest retailers of aftermarket automotive parts, tools, and accessories in North America. Catering to do-it-yourself customers and third-party vehicle repair facilities, Advance Auto Parts operated 5,086 stores as of the end of 2022. The company's Worldpac chain is a leading distributor of imported original-equipment parts. In 2022, commercial clients accounted for 59% of its sales, with the remainder coming from DIY shoppers.
GF Value: A Closer Look
The GF Value is a unique metric that estimates the fair value of a stock based on historical trading multiples, an adjustment factor from GuruFocus based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. Given Advance Auto Parts' current price and market cap, the stock is estimated to be a possible value trap.
Financial Strength and Profitability
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company’s financial strength before purchasing shares. Advance Auto Parts has a cash-to-debt ratio of 0.05, ranking worse than 89.79% of companies in the Retail - Cyclical industry. Based on this, GuruFocus ranks Advance Auto Parts’ financial strength as 5 out of 10, suggesting a fair balance sheet.
Profitable companies typically carry less risk, especially those that have demonstrated consistent profitability over the long term. Advance Auto Parts has been profitable 10 years over the past 10 years, with revenues of $11.2 billion and EPS of $6.73 over the past 12 months. Its operating margin of 5.37% is better than 61.19% of companies in the Retail - Cyclical industry.
Growth and ROIC vs. WACC
Growth is a significant factor in the valuation of a company. Advance Auto Parts’ 3-year average revenue growth rate is better than 69.62% of companies in the Retail - Cyclical industry. Its 3-year average EBITDA growth rate is 8%, ranking better than 50.39% of companies in the same industry.
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) is another way to assess its profitability. Advance Auto Parts’ ROIC is 6.39, and its WACC is 5.21, indicating that the company generates cash flow well relative to the capital it has invested in its business.
Conclusion
In conclusion, Advance Auto Parts (AAP, Financial) is estimated to be a possible value trap, and investors should think twice. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 50.39% of companies in the Retail - Cyclical industry. To learn more about Advance Auto Parts stock, check out its 30-Year Financials here.
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