Is Advance Auto Parts stock a good buy?

Advance Auto Parts, Inc. is an American automotive aftermarket parts retailer, which supplies automotive replacement parts, accessories, batteries, and maintenance items. It is headquartered in Roanoke, Virginia. As of October 27, 2019, Advance Auto Parts operates 4,871 stores and 143 Worldpac branches in the United States, Canada, Puerto Rico and the U.S. Virgin Islands. The company also serves 1,246 independently owned Carquest branded stores across these locations as well as Mexico.

Advance Auto Parts went public in 1971 and began trading on the New York Stock Exchange under the ticker AAP.

In 2013, Advance Auto Parts acquired General Parts International, Inc., a leading distributor of original equipment and aftermarket automotive replacement parts and accessories in North America.

On December 19, 2018, Advance Auto Parts announced it would be relocating its corporate headquarters from Roanoke to Raleigh, North Carolina by early 2020.

The company has been struggling lately with declining sales and profit margins. In the most recent quarter, comparable sales fell 1.4% while gross margin declined 60 basis points to 44.3%. The company has been investing heavily in its e-commerce business and store remodels to turn things around, but these initiatives have yet to gain traction. Wall Street is growing impatient with the company’s turnaround efforts and has been increasingly vocal about its frustration. As a result, shares of Advance Auto Parts have fallen more than 30% over the past year.

With that said, I believe Advance Auto Parts stock is a good buy at current levels for three reasons:

First, despite its recent struggles, Advance Auto Parts is still one of the largest and most successful auto parts retailers in the world with a strong brand name and wide moat. The company operates more than 4,800 stores across North America and serves more than 1 million customers each day.

Second, Advance Auto Parts is taking steps to turn things around by investing heavily in its e-commerce business and store remodels. These initiatives should start to pay off soon and help drive sales and profit growth going forward.

Third, shares of Advance Auto Parts are attractively valued at current levels. The stock trades at just 10 times earnings estimates for the next 12 months and offers a dividend yield of 2%. This makes it an attractive option for income-seeking investors.

For these reasons, I believe Advance Auto Parts stock is a good buy at current levels

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