Further weakness as Advance Auto Parts (NYSE:AAP) drops 5.6% this week, taking three-year losses to 83%

As every investor would know, not every swing hits the sweet spot. But really bad investments should be rare. So spare a thought for the long term shareholders of Advance Auto Parts, Inc. (NYSE:AAP); the share price is down a whopping 84% in the last three years. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 58% in the last year. The falls have accelerated recently, with the share price down 36% in the last three months. While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Given the past week has been tough on shareholders, let's investigate the fundamentals and see what we can learn.

Our free stock report includes 1 warning sign investors should be aware of before investing in Advance Auto Parts. Read for free now.

Advance Auto Parts isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. When a company doesn't make profits, we'd generally hope to see good revenue growth. Some companies are willing to postpone profitability to grow revenue faster, but in that case one would hope for good top-line growth to make up for the lack of earnings.

Over the last three years, Advance Auto Parts' revenue dropped 2.1% per year. That's not what investors generally want to see. Having said that the 23% annualized share price decline highlights the risk of investing in unprofitable companies. This business clearly needs to grow revenues if it is to perform as investors hope. There's no more than a snowball's chance in hell that share price will head back to its old highs, in the short term.

You can see how earnings and revenue have changed over time in the image below (click on the chart to see the exact values).

It's good to see that there was some significant insider buying in the last three months. That's a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Advance Auto Parts in this interactive graph of future profit estimates.

A Different Perspective

While the broader market gained around 8.7% in the last year, Advance Auto Parts shareholders lost 57% (even including dividends). Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 1 warning sign for Advance Auto Parts that you should be aware of before investing here.

Advance Auto Parts is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.

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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.