Is It Time To Consider Buying Advance Auto Parts, Inc. (NYSE:AAP)?

Advance Auto Parts, Inc. (NYSE:AAP), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$86.45 at one point, and dropping to the lows of US$62.48. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Advance Auto Parts' current trading price of US$63.42 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Advance Auto Parts’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

View our latest analysis for Advance Auto Parts

Is Advance Auto Parts Still Cheap?

The stock seems fairly valued at the moment according to our valuation model. It’s trading around 8.77% above our intrinsic value, which means if you buy Advance Auto Parts today, you’d be paying a relatively reasonable price for it. And if you believe the company’s true value is $58.31, there’s only an insignificant downside when the price falls to its real value. Although, there may be an opportunity to buy in the future. This is because Advance Auto Parts’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Advance Auto Parts look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Advance Auto Parts' earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in AAP’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough confidence to invest in the company should the price drop below its fair value?

Are you a potential investor? If you’ve been keeping tabs on AAP, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the positive outlook is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you want to dive deeper into Advance Auto Parts, you'd also look into what risks it is currently facing. To that end, you should learn about the 3 warning signs we've spotted with Advance Auto Parts (including 1 which makes us a bit uncomfortable).

If you are no longer interested in Advance Auto Parts, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.

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