Advance Auto Parts (NYSE: AAP, 30-year financials) stock gives all indications of being slightly overvalued, according to GuruFocus Value’s calculation. The GuruFocus Value is GuruFocus’s estimate of the fair value at which the stock is to trade. It is calculated based on the historical multiples at which the stock has traded, past business growth, and analysts’ estimates of future business performance. If a share’s price is significantly above the GF value line, it is overvalued and its future performance may be poor. On the other hand, if it is significantly below the GF value line, its future return is likely to be higher. At its current price of $ 209.19 per share and market cap of $ 13.7 billion, Advance Auto Parts stock appears to be slightly overvalued. The GF value for Advance Auto Parts is shown in the table below.
Because Advance Auto Parts is relatively overvalued, its long-term stock return is likely to be lower than its business growth, which has averaged 5% over the past three years and is expected to grow 3.12%. per year for the next three to five years. .
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Investing in companies with low financial strength presents a higher risk of permanent loss of capital. Thus, it is important to carefully consider the financial strength of a company before deciding whether or not to buy its shares. Examining the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a business. Advance Auto Parts has a cash to debt ratio of 0.29, which is worse than 67% of companies in the retail sector – cyclical. GuruFocus ranks the overall financial strength of Advance Auto Parts as 5 out of 10, which indicates that the financial strength of Advance Auto Parts is fair. Here is Advance Auto Parts’ debt and cash flow over the past few years:
It is less risky to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A business with high profit margins is also generally a safer investment than a business with low profit margins. Advance Auto Parts has been profitable 10 over the past 10 years. In the past twelve months, the company achieved sales of $ 10.7 billion and earnings of $ 9.33 per share. Its operating margin is 8.60%, which ranks it better than 74% of companies in the Retail – Cyclical industry. Overall, GuruFocus ranks Advance Auto Parts profitability at 6 out of 10, indicating reasonable profitability. Here is Advance Auto Parts sales and net profit for the past few years:
One of the most important factors in the valuation of a business is growth. Long-term equity performance is closely linked to growth, according to GuruFocus research. Companies that grow faster create more shareholder value, especially if that growth is profitable. The average annual revenue growth of Advance Auto Parts is 5%, which ranks better than 69% of companies in the Retail – Cyclical sector. The 3-year average EBITDA growth is 7.1%, which ranks among the average for companies in the Retail – Cyclical industry.
A company’s profitability can also be assessed by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on Invested Capital (ROIC) measures the extent to which a business generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company should pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely to create value for its shareholders. Over the past 12 months, Advance Auto Parts’s ROIC is 10.31 while its WACC is 7.75. Advance Auto Parts historical ROIC vs WACC comparison is shown below:
In short, the stock of Advance Auto Parts (NYSE: AAP, 30-year-old Financials) gives every indication of being modestly overvalued. The company’s financial position is fair and its profitability is fair. Its growth is in the mid-range of companies in the Retail – Cyclical industry. To learn more about Advance Auto Parts’s stock, you can view its 30-year financial data here.
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