Let's talk about the popular Advance Auto Parts, Inc. (NYSE:AAP). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Advance Auto Parts’s outlook and value based on the most recent financial data to see if the opportunity still exists.
What's the opportunity in Advance Auto Parts?
The stock seems fairly valued at the moment according to my valuation model. It’s trading around 3.9% below my intrinsic value, which means if you buy Advance Auto Parts today, you’d be paying a fair price for it. And if you believe that the stock is really worth $249.36, then there’s not much of an upside to gain from mispricing. So, is there another chance to buy low in the future? Given that Advance Auto Parts’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.
What kind of growth will Advance Auto Parts generate?
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. With profit expected to grow by a double-digit 13% over the next couple of years, the outlook is positive for Advance Auto Parts. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.
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 financial strength of the company. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?
Are you a potential investor? If you’ve been keeping an eye on AAP, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.
Since timing is quite important when it comes to individual stock picking, it's worth taking a look at what those latest analysts forecasts are. So feel free to check out our free graph representing analyst forecasts.
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.
What are the risks and opportunities for Advance Auto Parts?
Trading at 50.5% below our estimate of its fair value
Earnings are forecast to grow 5.87% per year
Debt is not well covered by operating cash flow
Profit margins (3.1%) are lower than last year (4.8%)
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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.
Advance Auto Parts
Advance Auto Parts, Inc. provides automotive replacement parts, accessories, batteries, and maintenance items for domestic and imported cars, vans, sport utility vehicles, and light and heavy duty trucks.
Undervalued with mediocre balance sheet.