Advance Auto Parts, Inc. (NYSE:AAP), might not be a large cap stock, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$49.79 at one point, and dropping to the lows of US$32.43. 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$32.43 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.
What's The Opportunity In Advance Auto Parts?
The stock seems fairly valued at the moment according to our valuation model. It’s trading around 15% below our intrinsic value, which means if you buy Advance Auto Parts today, you’d be paying a fair price for it. And if you believe the company’s true value is $37.94, then there isn’t much room for the share price grow beyond what it’s currently trading. 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.
See our latest analysis for Advance Auto Parts
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. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with an expected decline of -3.7% in revenues over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Advance Auto Parts. This certainty tips the risk-return scale towards higher risk.
What This Means For You
Are you a shareholder? AAP seems fairly priced right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on the stock, take a look at whether its fundamentals have changed.
Are you a potential investor? If you’ve been keeping an eye on AAP for a while, now may not be the most optimal time to buy, given it is trading around its fair value. The stock appears to be trading at fair value, which means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help crystalize your views on AAP should the price fluctuate below its true value.
If you want to dive deeper into Advance Auto Parts, you'd also look into what risks it is currently facing. In terms of investment risks, we've identified 1 warning sign with Advance Auto Parts , and understanding this should be part of your investment process.
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.