Is Advanced Auto Parts worth investing in?

[View in browser]( [The Spill Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Financial Pros’ Top Auto Parts Stock Searches in the Last Month Rank Name Searches #1 'Advanced Auto Parts Inc 222 #2 'Autozone 91 #3 'O'Reilly Automotive 29 #4 'Genuine Parts Company 18 #5 'Goodyear Tire Rubber 12 #ad [Exclusive Report of Q1’S Most Popular Stocks]( Brought to you by [Atakama]( [Limited Time Offer: Invest in Atakama before June 30th!]( [Atakama - Limited Time Offer: Invest in Atakama before June 30th!]( Time is running out to invest in Atakama, the disruptive force in the $2B cybersecurity market. Secure your opportunity to support innovation and diversify your portfolio. Don't miss out on this Pre-IPO investment chance. Act now before June 30th! [Invest Now]( Advanced Auto Parts: A hidden gem or a lemon in the market? Back in April, we rated O’Reilly Automotive (ORLY) a 10/10. Frankly, we could have done the same for Autozone (AZO). These stocks are up more than 400% and 30% respectively since mid-2017. You know which stock isn’t? Advanced Auto Parts (AAP). In fact, with its recent earnings swan dive, you’d be down overall. Yet, like a bad accident, financial pros are rubber-necking to look at this ticker, sifting through the wreckage for a possible investment. Not wanting to let them have all the fun, we took a look at the stock’s valuation after shares got cut in half over the last month. Here’s what we found. Advanced Auto Parts’ Business If you own a car, chances are you've heard of Advanced Auto Parts, one of the largest retailers of aftermarket auto parts and accessories in the US. Whether you need a new battery, brake pads, oil filter, or windshield wipers, AAP has you covered. You can shop online or visit one of their over 4,800 stores nationwide. They also offer free services such as battery testing, installation, and recycling, as well as a loyalty program that rewards you with discounts and coupons. [Sales] [Source: 2022 AAP Annual Report]( AAP caters to both do-it-yourself (DIY) customers and professional installers, such as mechanics, dealerships, and fleet operators. The company sells auto parts and accessories at a markup from their wholesale suppliers. Customers can shop in-store or through their online platform, which allows customers to order products online and pick them up in-store or have them delivered to their homes or businesses. Parts and batteries make up 2/3rds of the sales, while accessories and chemicals are roughly 1/5th. [Sales percentage] [Source: 2022 AAP Annual Report]( Despite its strong market position and loyal customer base, AAP suffers from inept management. The company reported disappointing results for the third quarter of 2023, missing analysts' expectations on both revenue and earnings. AAP's revenue fell 2.4% year-over-year to $2.48 billion, while its earnings per share dropped 10.4% to $1.98. The company also lowered its guidance for the full year, citing supply chain disruptions, labor shortages, and inflationary pressures as the main challenges. AAP’s performance is abysmal when compared to AZO’s last report, which included an 11% YoY sales increase and 17.4% earnings growth and mentions of the same headwinds. Financials [Financials] Source: Stock Analysis The problems plaguing AAP aren’t anything new. It’s acquisitions of CARQUEST and WOLDPAC increased its exposure to the professional segment, adding costs and complexity. And it turns out professionals are much less loyal and resilient than the DIYers, the group making up 80% of Autozone’s sales. AAP never achieved efficient operations, often stuck with bloated inventory and expensive supply chains. All this culminates in a company with single-digit sales growth during its best years, with margins that never seem to improve. Did we mention the debt? That exploded from $1.2 billion to $1.8 billion last quarter, while interest expenses went from $12 million in October to $29.7 million last quarter. Valuation [Valuation] Source: Seeking Alpha Sure, AAP is cheap. It trades at the lowest price-to-earnings multiple, and the second lowest price-to-sales and price-to-cash-flow multiple, only behind Goodyear Tire (GT), which arguably hasn’t done well the last several years either. All the other auto parts stocks, including Genuine Parts Company (GPC), trade at higher multiples because they deliver better sales growth and margins. Growth [Growth] Source: Seeking Alpha AAP’s 5-year average revenue growth of 3.7% is the worst of the group. The other two main competitors, AZO and ORLY, have done much better, with sales up an average of 12.3% and 13.2%, respectively. The negative EBTIDA growth for AAP is just another sign of how bad things are for the company. Profitability [Profit] Source: Seeking Alpha Don’t let the decent gross margins fool you. AAP has one of the lowest EBIT and net income margins of the group. Again, GT doesn’t look so good either. But it’s a tire company with markedly different business model. [We make understanding investing a lot easier]( Unpack the complex world of investing through the lens of some of the industry’s top investors. Subscribe to The Juice newsletter for FREE and lead the game like a pro! [Subscribe now.]( Our Opinion 0/10 AAP is in an industry facing real headwinds from supply chain slowdowns to higher labor and material costs. Yet, they’re also the worst-run company of the group. While they might be a great place to shop, you’re better off with either AZO or ORLY. [-facebook-share]( [-twitter-share]( [-linkedin-share]( [-email-share](mailto:?body= %3Cbr+%2F%3E%0A%3Cb%3ENotice%3C%2Fb%3E%3A++Undefined+property%3A+stdClass%3A%3A%24previewText+in+%3Cb%3E%2Fvar%2Fwww%2Fhtml%2Fnl_forms%2Fsrc%2FICTheSpill%2Fautomate-ic-article.php%3C%2Fb%3E+on+line+%3Cb%3E102%3C%2Fb%3E%3Cbr+%2F%3E%0Ahttps%3A%2F%2Finvestingchannel.com%2F%3Fp%3D582973?utm_medium=ic-nl&utm_source=108927 ) News & Insights Just Spilled - [Microsoft’s $10 Billion Bet Turns Heads]( - [Markets are volatile, stay on top of Alternative Investments like Real Estate, Private Equity…]( - [A Harvard Case Study on What NOT to do]( - [The Worst Way to Invest in Natural Gas is Also The Best]( [News & Insights-facebook-share]( [News & Insights-twitter-share]( [News & Insights-linkedin-share]( [News & Insights-email-share](mailto:?body= %3Cbr+%2F%3E%0A%3Cb%3ENotice%3C%2Fb%3E%3A++Undefined+property%3A+stdClass%3A%3A%24previewText+in+%3Cb%3E%2Fvar%2Fwww%2Fhtml%2Fnl_forms%2Fsrc%2FICTheSpill%2Fautomate-ic-article.php%3C%2Fb%3E+on+line+%3Cb%3E102%3C%2Fb%3E%3Cbr+%2F%3E%0Ahttps%3A%2F%2Finvestingchannel.com%2F%3Fp%3D582973?utm_medium=ic-nl&utm_source=108927 ) [We want to hear from you. Let us know your thoughts by clicking here]( [Ads][Link]( [InvestingChannel Logo](#) Follow us on: [Facebook Logo]( [LinkedIn Logo]( [Twitter Logo]( [Instagram Logo]( To ensure delivery of all emails, [allow us on your list]( Spill&email=TheSpill@news.investingchannel.com). Manage your subscriptions with our [preference center](. [Unsubscribe here.]( View our privacy policy [here](. Copyright ©2023 InvestingChannel. All rights reserved. 1325 Avenue of the Americas, Floor 27 & 28 New York, New York 10019 Disclaimer: This is not investment advice. This InvestingChannel, Inc., newsletter is for information purposes only and is based on opinion. Futures, forex, stock, and options trading are not appropriate for all investors. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can ensure returns or eliminate losses. InvestingChannel, Inc., makes no representation or implication that using any of the methodologies or systems in this newsletter will generate returns or insure against losses. Investors should be cautious about any and all investments and are advised to conduct their own due diligence prior to making any investment decisions.