Advance Auto Parts (AAP): Assessing Valuation After Recent Share Price Gains

Advance Auto Parts (AAP) shares have climbed nearly 4% over the past week, extending gains to over 20% for the past 3 months. Investors are watching whether this momentum can continue as conditions in the retail sector continue to shift.

See our latest analysis for Advance Auto Parts.

Advance Auto Parts has seen its momentum build lately, but the bigger picture remains mixed. The company's 1-year total shareholder return of just 0.6% highlights how recent share price gains are still playing catch-up after earlier struggles. Longer-term returns continue to lag behind the market.

If you're interested in how other auto-related stocks are performing, now is a great time to see what else is on the move with See the full list for free.

With shares rebounding sharply but longer-term returns still well below market averages, investors may wonder whether Advance Auto Parts is now trading at a bargain or if the current price already reflects all potential future growth.

Most Popular Narrative: 17% Overvalued

At $62.14, Advance Auto Parts trades above the consensus fair value estimate of $53.20, signaling a market price that exceeds even optimistic earnings improvements. This sets the stage for bold corporate moves as the company accelerates its efficiency transformation in hopes of justifying or exceeding current valuations.

The consolidation of distribution centers (DCs) from 38 to 12 by 2026 aims to enhance supply chain efficiency. This reorganization, along with new market hub stores, is projected to reduce supply chain costs and improve gross margins, impacting earnings positively.

Read the complete narrative.

Think you know the secret ingredient that could drive a turnaround? The real story involves a squeeze on costs, hopes of fatter margins, and a margin leap usually reserved for growth disruptors. Want to see which assumptions and numbers are powering this bold price call? Unpack the full playbook and discover what could fuel or shatter this valuation.

Result: Fair Value of $53.20 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, short-term profitability challenges and ongoing store closures could still hinder a sustained turnaround, particularly if sales continue to underwhelm expectations.

Find out about the key risks to this Advance Auto Parts narrative.

Another View: SWS DCF Model Suggests Upside

While the consensus price targets suggest Advance Auto Parts is trading above its fair value, the SWS DCF model takes a different view. It calculates a fair value of $81.43 per share, which is well above the current market price. This implies the stock may actually be undervalued if future cash flows materialize as forecast. Which valuation lens will prove more accurate?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Advance Auto Parts for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Advance Auto Parts Narrative

If you have a different perspective or want to dive into the numbers on your own, it's easy to craft your own view in just a few minutes. Start with Do it your way.

A great starting point for your Advance Auto Parts research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

Looking for More Smart Investment Moves?

Broaden your strategy and unlock your next great stock pick by capitalizing on unique market trends, tapping into high-potential themes, and staying ahead of the herd with exclusive ideas from Simply Wall Street. Don’t let the smartest opportunities slip by.

• Amplify your hunt for strong yields and steady income by checking out these 19 dividend stocks with yields > 3% offering reliable returns above 3%.
• Uncover promising companies driving the next tech breakthrough with these 24 AI penny stocks, tapping into market-defining artificial intelligence trends.
• Start building a portfolio of tomorrow’s standout bargains by seizing opportunities from these 910 undervalued stocks based on cash flows that show powerful cash flow potential right now.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com